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OUR  ELEVEN  BILLION  DOLLARS 


1 


OUR  ELEVEN  BILLION 
DOLLARS 

Europe's  Debt  to  the  United  States 

BY 

ROBERT  MOUNTSIER 


1922 

THOMAS  SELTZER 

New  York 


Copyright,  1922,  by 
THOMAS  SELTZER,  Inc. 


All  rights  reserved 


Printed  in  the  United  States  of  America 


FOREWORD 


"Our  Eleven  Billion  Dollars"  has  grown  out  of 
the  writer's  frequent  business  trips  in  Europe. 
In  this  presentation  of  the  European  economic 
and  political  situation,  with  special  reference  to 
the  billions  owed  to  the  United  States  by  Europe, 
the  facts  and  figures  are  based  largely  upon  official 
documents.  But  the  whole  truth  is  not  to  be 
obtained  from  such  sources;  the  authority  for 
many  statements  is  based  on  personal  experience 
in  Europe  and  the  experience  of  other  Americans 
holding  important  business  or  official  positions 
abroad. 

Robert  Mountsier. 
New  York  City, 
April  10,  1922. 


1C95872 


CONTENTS 

PAGE 

I    Eleven  Billion  Dollars  Worth  of  Europe    1 
II     Europe,   Dr.,   to   U.    S.    A.    &    Co.,    Cr.— 

$16,000,000,000 13 

III  Billions  for  Refunding,  But  Not  One  Cent 

for  Cancellation 23 

IV  Increasing  Debts  and  Unbalanced  Budgets  38 
V    Europe's  Paper,  America's  Gold     ...  52 

VI     Foreign  Trade  and  Foreign  Exchange   .      .   66 
VII    German  Reparations  and  Preparations  .     .  87 
VIII    European  Plans  to  Revive  World  Trade    .107 
IX     The   First   International   Bank   —  an 

American  Plan  for  Restoring  Europe  .117 
X    Wanted:  A  World  Economic  Conference 

in  Washington 130 


STATISTICS 

PAGE 

1.  Obligations  of  European  Governments  to  the 

United  States  for  Advances  Made  under  the 
Liberty  Bond  Acts 16 

2.  Obligations  of  European  Governments  to  the 

United  States  for  Surplus  War  Supplies  and 
Foodstuffs 17 

3.  Totals  of  War  and  Post-war  Debts  Owed  to  the 

United  States  Government  by  European  Gov- 
ernments          19 

4.  Statement  of  European  Government,  Municipal 

and  Corporate  Loans  Placed  in  the  United 
States        20 

5.  Post-war  Budgets  of  the  Principal  Countries  of 

the  World 40,  41 

6.  National  Debts  of  the  Principal  Countries  of 

the  World 44,  45 

7.  Effect  of  the  War  on  the  Public  Debt  of  the 

United  States 49 

8.  Growth  of  the  United  States'  Gold  Power    .      .     59 

9.  United  States'  Post-war  Imports  and  Exports 

of  Gold 60 

10.  Gold  Reserves  and  Paper  Currency  Issues  of 

Principal  Countries 62 

11.  Rise  and  Fall  in  Annual  Foreign  Trade  Balance 

of  the  United  States  between  1912  and  1921     66 

12.  Foreign   Commerce  of  the  United   States  for 

1920  and  1921 68 

13.  Index   of   Value   and   Volume   of   the   United 

States' Foreign  Trade  from  1913  to  1921.      .     72 

14.  Index  Numbers  of  Value  and  Volume  of  Ex- 

ports during  1919,  1920  and  1921,  Based  on 
Average  Monthly  Figures  for  1913   ...     74 


STATISTICS 

PAGE 

15.  Index  Numbers  of  Value  and  Volume  of  Im- 

ports during  1919,  1920  and  1921,  Based  on 
Average  Monthly  Figures  for  1913     .      .      .     75 

16.  Foreign  Trade  of  the  Principal  Belligerent  and 

Neutral  Countries 80 

17.  Depreciated    Values    of    European    Monetary- 

Units  in  Terms  of  the  American  Dollar  .      .     81 

18.  Index  Numbers  of  "Wholesale  Prices  from  1913 

to  1922 84 

19.  Index  Numbers  of  Food  Prices  in  the  United 

States    during    Three    "War    and    Post-^var 
Periods 86 

20.  Increases  in  German  Currency  and  Decreases 

in  Exchange  Value  of  the  Mark  ....     92 


$11,000,000,000  WORTH  OF  EUROPE 

Seventeen  European  governments  or  so-called 
governments  owe  the  government  of  the  United 
States  $11,000,000,000  and  more.  The  whole  coun- 
try has  heard  repeatedly  of  the  large  amounts 
loaned  by  the  United  States  government  during 
the  war  and  after,  but  as  yet  the  majority  of 
American  people  know  little  of  the  truth  about  this 
enormous  debt.  As  much  of  the  truth  as  can  be 
put  into  this  book  is  here  for  every  man  to  read. 
The  facts  and  figures  given  are  of  direct  personal 
concern  to  merchant  and  manufacturer,  banker 
and  financier,  capitalist  and  workman,  indeed  to 
anybody  owning  a  Liberty  bond  or  paying  a  tax, 
either  directly  or  indirectly. 

The  $11,000,000,000  and  more  that  many  Amer- 
icans, Congressmen  included,  expect  Europe  to 
pay  us  in  the  next  twenty-five  years,  are  not  com- 
ing back  to  the  United  States.  This  is  a  fact  that 
it  is  far  better  to  face  to-day  than  five  or  twenty- 
five  years  from  now.  No  amount  of  camouflage 
can  change  this  part  of  the  truth;  those  billions 
and  other  billions  that  will  accumulate  are  abroad 
to  stay,  no  matter  whether  Europe  and  America 
have  peace  or  war. 

And  the  reasons. 


2  OUR  ELEVEN  BILLION  DOLLARS 

Europe  cannot  now  pay  her  debts,  and  she  will 
be  unable  to  pay  them  within  the  next  twenty- 
five  years.  Furthermore,  though  it  may  seem 
paradoxical,  the  people  of  the  United  States  can- 
not afford  to  have  billion  after  billion  paid  into 
the  country.  Even  now,  with  more  than  $3,500,- 
000,000  of  gold  in  this  country,  we  have  more  gold 
than  we  know  what  to  do  with.  It  is  better  for 
us  as  well  as  for  Europe  that  this  flood  of  gold 
from  across  the  Atlantic  should  cease.  The  Con- 
gressman who  demands  that  Europe  pay  us  at 
once  in  hard  cash  evidently  does  not  know  that 
the  world's  supply  of  gold  money  is  consider- 
ably less  than  Europe's  total  debt  to  us,  and  that 
if  the  United  States  held  all  the  gold  in  the  world 
it  would  mean  poverty  for  the  American  people 
even  though  every  man,  woman  and  child  in  this 
country  had  their  pockets  filled  with  $20  gold 
pieces. 

Europe  might  be  able  ultimately  to  pay  us 
$11,000,000,000,  plus  accrued  interest,  in  goods, 
but  we  can  no  more  afford  importations  on  such 
a  vast  scale  than  continued  payments  of  large 
sums  of  gold.  Commodities  shipped  to  this  coun- 
try in  an  attempt  to  settle  Europe's  debts  would 
jam  every  dock  on  the  Atlantic  and  Pacific 
coasts  and  would  glut  our  markets  and  cause  gen- 
eral business  stagnation,  with  factories  closed 
throughout  the  country  and  workmen  by  the  mil- 
lion thrown  out  of  employment. 

If  it  is  not  evident  now,  it  will  in  time  be  gen- 


$11,000,000,000  "WORTH  OF  EUROPE  3 

erally  realized  by  the  American  people  that  we 
cannot  collect  directly  the  billions  owed  us  by 
Europe,  nor  can  we,  for  the  sake  of  Europe  as 
well  as  for  this  country,  cancel  these  debts  under 
present  conditions.  Since  this  huge  sum  cannot 
be  paid  in  gold,  currency  or  goods,  since  we 
have  more  gold,  currency  and  goods  than  we 
ourselves  need,  there  remains  but  one  solution  of 
a  problem  that  is  keeping  financiers  and  govern- 
ment treasury  officials  throughout  the  world 
awake  at  night. 

This  solution  requires  the  American  people  to 
invest  $11,000,000,000  and  other  billions  in  Eu- 
rope— all  these  expatriated  dollars  to  work  for  us 
instead  of  helping  keep  many  Americans  out  of 
work,  as  at  present. 

Even  though  the  United  States  is  unable  to 
absorb  the  billions  of  the  principal  from  Europe, 
it  might  absorb  the  interest.  However,  it  will 
soon  become  evident  that  even  the  interest  for 
many  years  should  be  invested  abroad.  At  pres- 
ent, interest  on  the  debts  owed  by  Europe  to  the 
United  States  government  is  accruing  at  the  rate 
of  about  $1,400,000  a  day.  While  you  are  reading 
this  page  Europe 's  debt  to  the  United  States  has 
increased  over  $1,000. 

Under  the  present  loans  to  the  governments  of 
Europe  and  the  so-called  governments,  to  use  a 
phrase  that  is  popular  with  the  United  States 
Treasury,  we  are  legally  entitled  to  $11,000,- 
000,000  worth  of  Europe,  but  just  what  part  of 


4  OUR  ELEVEN  BILLION  DOLLARS 

the  European  countries  and  their  assets  has  not 
yet  been  determined.  That  we  should  collect  our 
$11,000,000,000  worth  by  conquest  or  annexation 
has  never  entered  anybody's  head,  not  even  that 
of  the  most  belligerent  senator.  But  having  an 
important  interest  in  Europe  in  these  billions  of 
government  loans  and  the  billions  owed  to  Amer- 
ican manufacturers,  bankers  and  investors,  it  is 
well  to  know  just  where  we  stand,  and  that  is  pri- 
marily a  matter  of  where  Europe  stands. 

Not  one  of  the  European  governments  owing 
us  money  is  actually  solvent  at  the  present  time. 
In  some  ways  Europe  has  gone  from  bad  at  the 
Peace  Conference  to  worse  in  the  hands  of  poli- 
ticians who  have  been  manipulating  national  and 
international  affairs  toward  further  war  and 
ruin.  Europe  is  suffering  from  bad  politics  and 
bad  economics.  Economic  warfare  has  been 
waged  violently  in  Europe  since  the  Armistice, 
and  unless  Europe  reforms,  this  economic  war 
is  preliminary  to  another  great  war,  the  founda- 
tions of  which  were  laid  by  the  Treaty  of  Ver- 
sailles. 

New  countries,  established  on  alleged  racial 
lines  in  defiance  of  economic  and  geographic 
boundaries,  have  been  vying  with  older  govern- 
ments in  making  laws  that  ignore  and  violate  the 
inexorable  laws  of  economics.  They  have  subsi- 
dized foods  and  unemployment,  erected  tariff 
walls  and  attempted  to  build  up  export  trade 
while  legislating  against  importing.     They  have 


$11,000,000,000  WORTH  OF  EUROPE  H 

tried  to  stabilize  exchange  and  to  replace  gold 
with  paper.  While  failing  to  balance  budgets 
they  have  established  and  supported  unnatural 
industries  and  have  spent  money  on  armaments 
in  preparation  for  the  next  war. 

No  student  of  history  can  be  among  the  pessi- 
mists who  think  Europe  is  permanently  ruined. 
Although  humanity  is  in  a  pretty  bad  way,  partly 
because  of  what  the  war  did  not  do  for  it,  the 
world  will  come  back  to  a  new  sort  of  normality — 
it  will  never  be  a  normality  of  pre-war  condi- 
tions— as  always  in  the  past  after  a  widely  devas- 
tating war.  And  this  return  will  be  made  de- 
spite the  $350,000,000,000  loss  suffered  by  the 
world  through  Europe's  War,  a  name  far  nearer 
the  truth  than  the  term  World  War.  Three  cen- 
turies ago  Europe  had  the  Thirty  Years '  War,  but 
blacker  conditions  than  exist  to-day  did  not  pre- 
vent Europe's  return  to  periods  of  peace  so  pros- 
perous as  to  make  it  possible  to  indulge  in  further 
costly  wars.  The  Napoleonic  wars  laid  waste  Eu- 
rope, leaving  England  with  a  debt  sixteen  times 
as  great  as  at  the  beginning,  but  in  a  far  shorter 
period  than  that  covered  by  these  wars  England 
became  the  leading  power  in  western  Europe,  her 
influence  greatly  enhanced  by  gold  and  credit. 
To-day  Great  Britain's  debt  is  ten  times  what  it 
was  before  the  recent  war. 

After  the  war  of  1870  the  pessimists  said  that 
France  would  be  ruined  by  the  payment  of  the 
huge  indemnity  demanded  by  Prussia,  that  the 


6  OUR  ELEVEN  BILLION  DOLLARS 

payment  of  the  indemnity  in  full  was  absolutely 
impossible.  But  in  those  days  there  was  only  a 
Bismarck  to  see  that  the  French  paid ;  to-day  the 
outcome  is  less  certain  since  there  are  a  Keynes, 
a  Wells  and  a  Lloyd  George  to  see  that  the 
French  are  not  paid  in  full  by  the  Germans. 

No  country  to-day  has  a  more  discouraging 
outlook  than  had  the  United  States  after  the  Bevo- 
lutionary  War  when  the  new  nation  had  been 
formed  from  thirteen  impoverished  colonies. 
For  us  that  is  ancient  history,  but  living  to-day 
are  Americans  who  have  forgotten  that  after  the 
Civil  War  they  handled  an  American  dollar  that 
was  worth  little  more  than  the  French  franc  of 
1921  and  that  not  until  fourteen  years  after  Lee 
surrendered  to  Grant  did  the  United  States  re- 
sume gold  payments. 

And  yet  the  constant  bombardment  of  the  prop- 
aganda that  Europe  is  ruined  if  Germany  is 
compelled  to  pay  the  reparation  sums  imposed 
by  the  Allies.  Note,  however,  that  this  prophetic 
propaganda  ignores  the  payment  by  France,  fol- 
lowing her  defeat  in  1871,  of  an  unprecedented 
indemnity  without  whining,  without  attempts  at 
evasion. 

Since  1919  certain  improvements  have  been 
brought  about  in  the  European  situation  through 
Europe's  own  efforts.  Food  conditions  are  better, 
with  the  exception  of  Russia,  and  the  fuel  prob- 
lem is  of  the  past.  The  revolutionary  spirit  is  no 
longer  threatening,  and  the  workers  are  more 


$11,000,000,000  WORTH  OF  EUROPE  7 

kindly  disposed  toward  greater  productive  ef- 
forts. Transportation  has  improved,  and  industry 
is  being  reorganized  with  a  view  to  greater  effi- 
ciency and  increased  production.  All  this  with 
the  result  that  a  marked  advance  in  the  standard 
of  living  has  taken  place  in  central  and  western 
Europe  since  1919. 

Nevertheless,  from  the  American  point  of  view, 
indeed  from  any  practical  business  standpoint, 
what  is  Europe?  At  the  opening  of  the  Genoa 
conference  a  bad  commercial  and  financial  risk; 
everywhere  over-inflation  the  rule,  with  govern- 
ment after  government  still  printing  unsecured 
paper  money.  Indeed,  it  would  appear  that 
nothing  but  printing  presses  could  keep  up  with 
Europe's  expenditures,  what  with  government 
waste  and  the  cost  of  armaments. 

Certain  European  politicians  continue  to  ignore 
the  fact  that  submarines,  no  matter  what  their 
number,  do  not  float  loans  and  capital  ships  can- 
not create  capital.  Europe's  problem  is  to  replace 
fixed  capital  destroyed  by  the  war,  not  to  destroy 
more  capital  by  putting  a  large  portion  of  what 
she  has  left  into  navies  and  armies.  The  solution 
of  this  problem  lies  in  increased  production,  which 
can  be  accomplished  best  with  the  aid  of  American 
capital  plus  economy  and  hard  work  on  Europe 's 
part.  Too  many  European  peoples  have  lost  their 
old  habits  of  hard  work  and  thrift.  There  has 
been  extensive  loafing  on  the  job  in  certain  quar- 
ters of  Europe  since  the  Armistice,  not  only  on 


8  OUR  ELEVEN  BILLION  DOLLARS 

the  part  of  workers,  many  of  whom  have  delib- 
erately reduced  production,  but  also  on  the  part 
of  capitalists  and  government  officials,  who  fre- 
quently have  waited  for  problems  to  solve  them- 
selves or  for  the  United  States  to  do  their  work 
for  them. 

Having  acquired  bad  habits,  Europe  finds  it 
difficult  to  eliminate  instruments  of  warfare,  re- 
duce inflation  and  balance  budgets,  but  her  costly 
experiences  are  bringing  her  to  a  point  where 
she  understands  that  a  thorough  reorganization 
is  necessary  to  prevent  further  military,  political 
and  financial  disasters.  Only  recently  has  Europe 
come  to  realize  that  without  such  reorganization 
no  financial  assistance  can  be  expected  from  the 
United  States. 

We  have  heard  much  talk  of  the  United  States ' 
saving  Europe,  but  two  obstacles  have  been  in 
the  way — the  United  States  does  not  wish  to  play 
the  role  of  savior,  and  Europe  does  not  wish  to 
be  saved.  Europe  has  been  quite  willing  to  accept 
our  charity  and  our  credits,  but  with  these  re- 
duced to  a  minimum  and  with  a  growing  knowledge 
of  the  dangers  ahead  the  whole  situation  is  pre- 
senting itself  in  a  different  light.  It  is  for  Europe 
to  display  a  willingness  to  clean  house  so  that 
she  may  have  something  to  show  us  when  asking 
for  financial  assistance  that  will  enable  her  to 
return  to  a  self-supporting  and  paying  basis.  The 
American  public  has  so  far  given  little  indication 
that  it  is  willing  to  meet  Europe  on  this  proposi- 


$11,000,000,000  ^YORTH  OF  EUROPE  9 

tion,  but  it  appears  that  the  time  is  not  far  distant 
when  a  sufficient  understanding  or  acute  neces- 
sity will  bring  the  American  people  to  aid  Europe 
in  its  financial  rehabilitation.  As  yet  there  is  on 
this  side  of  the  Atlantic  no  general  understanding 
of  how  $11,000,000,000  involve  the  United  States 
in  Europe's  affairs. 

For  some  time  the  man  in  the  street,  no  matter 
whether  Wall  Street  or  Main  Street,  has  been 
seeing  more  and  more  clearly  that  we  need  Eu- 
rope and  Europe  needs  us.  With  the  world  an 
economic  as  well  as  a  geographic  unit  the  United 
States  cannot  have  prosperity  until  Europe,  our 
best  export  customer,  has  the  credit  or  means  with 
which  to  buy  our  products. 

To  sum  up  the  situation :  As  a  result  of  the  war 
the  United  States  has  a  greater  productive  capac- 
ity and  larger  surpluses  of  manufactured  and 
agricultural  products  than  ever  before.  In  Eu- 
rope exists  an  immediate  need  for  these  surplus 
products.  But  the  war  and  poor  political  and 
economic  management  have  impoverished  Europe 
to  such  an  extent  that  she  can  buy  only  on  long- 
term  credits.  These  long-term  credits  and  capital 
with  which  to  reestablish  her  own  productiveness 
are  to  be  had  in  quantity  only  from  the  United 
States.  As  the  leading  creditor  country  of  the 
world  it  will  be  our  role  to  act  as  Europe 's  banker 
— when  she  institutes  reforms  satisfactory  to  us — 
just  as  Europe 's  capital  in  the  form  of  huge  loans 
and    investments    formerly    enabled    the    United 


10  OUR  ELEVEN  BILLION  DOLLARS 

States  to  develop  its  great  resources.  Before  the 
war  Great  Britain,  France  and  Germany  had  im- 
mense sums  invested  in  the  United  States  and 
other  countries.  These  investments  for  the  most 
part  would  have  been  permanent  had  it  not  been 
for  the  war,  which  compelled  the  belligerents  to 
exchange  an  important  part  of  their  holdings 
abroad  for  munitions  and  foodstuffs. 

The  situation  is  now  reversed.  Instead  of  a 
good  percentage  of  the  profits  of  American  indus- 
try and  enterprise  going  to  Europe  in  the  form 
of  interest  and  dividends  and  commodities,  the 
United  States  has  accumulated  wealth  in  Europe 
and  will  be  acquiring  more  on  the  other  side  of 
the  Atlantic,  thanks  in  part  to  the  debt  of  $11,000,- 
000,000  and  more.  With  our  great  industries  es- 
tablished on  a  scale  to  meet  foreign  demands  as 
well  as  home  consumption  we  cannot  afford  to 
ignore  Europe  and  her  needs.  We  must  sell  our 
surplus  commodities  to  a  Europe  that  is  econom- 
ically sound,  and  the  quickest  way  to  create  such 
a  condition,  is  to  invest,  after  she  has  instituted 
indispensable  reforms,  more  billions  in  her  indus- 
tries— in  stocks  giving  American  control. 

The  Harding  Administration  has  given  various 
indications  that  it  realizes  the  necessity  of  Amer- 
ican financial  aid  to  Europe  in  the  matter  of  re- 
funding the  European  governments'  debts,  facil- 
itating American  investments  abroad  and  extend- 
ing long-term  credits.  President  Harding  has 
pointed  out  that  "heroic  remedies"  are  necessary 


$11,000,000,000  WORTH  OF  EUROPE  11 

to  meet  the  situation.  To  Congress  he  has  made 
known  his  attitude  in  the  clearest  terms :  '  *  If  we 
must  choose  between  a  people  in  idleness  pressing 
for  payment  of  indebtedness  or  a  people  resuming 
normal  ways  of  employment  and  carrying  credit, 
let  us  choose  the  latter." 

But  the  Administration  awaits  the  psychologi- 
cal moment  for  the  United  States  to  join  Europe 
in  what  would  amount  practically  to  a  close  as- 
sociation with  European  nations  in  a  commercial 
and  financial  alliance.  One  President  of  the 
United  States  led  a  horse  to  water  and  failed  to 
make  him  drink.  Doubtless  his  successor  is  not 
ignorant  of  the  fact  that  a  thirsty  horse  will  lead 
to  water  and  drink  of  its  own  accord.  After  get- 
ting thirsty  enough  for  prosperity,  which  largely 
depends  upon  the  revival  of  Europe,  the  general 
public  and  Congress  will  accept  new  financial  and 
commercial  arrangements  with  Europe.  Not  only 
for  us  was  the  Conference  on  the  Limitation  of 
Armament  a  great  stride  toward  this  end; 
Europe  also  made  a  forward  move  in  coming  to 
Washington,  and  the  meeting  of  the  Supreme 
Council  at  Cannes  and  the  so-called  Economic  and 
Financial  Conference  at  Genoa,  may  be  considered 
quick,  if  faltering,  steps  toward  a  willingness  to 
united  action  in  the  economic  reconstruction  of 
Europe. 

Tn  this  work  the  United  States  will  be  the  domi- 
nating power  because  of  the  huge  debt  Europe 
owes  this  country  and  the  sums  she  must  still 


12  OUR  ELEVEN  BILLION  DOLLARS 

borrow.  Some  would  have  us  use  our  billions  as 
a  big  stick — $11,000,000,000  and  more  would  in- 
deed make  a  big  stick  to  wield  over  battered  Eu- 
rope— but  the  present  Administration  may  be 
counted  upon  to  use  it  as  a  pointer  of  the  kind  so 
well  known  in  the  American  school  room.  As  the 
chief  creditor  and  the  principal  banker  the  United 
States  has  a  right  and  also  a  duty  to  teach  the 
lesson  that  balanced  budgets,  minus  armaments, 
minus  currency  inflation,  plus  long-time  credits, 
investments  and  increased  production  equal  eco- 
nomic recovery  in  both  Europe  and  the  United 
States. 

The  short-sighted  American  who  has  not  kept 
pace  with  the  times  but  is  living  before  the  year 
1914  and  thinking  in  terms  of  the  Monroe  Doctrine 
and  grocery  bills  cries,  "Stay  out  of  Europe!" 
He  is  the  man  who  refuses  to  acknowledge  that 
the  complete  resumption  of  the  country's  business 
activity  on  a  normal  scale  depends  largely  upon 
the  progress  of  financial  and  industrial  recupera- 
tion in  those  countries  which  consume  our  surplus 
products ;  he  is  the  man  who  cannot  see  that  fail- 
ure to  give  Europe  financial  aid  in  the  near  future 
means  that  the  United  States  will  have  to  decrease 
production  and  consumption  even  below  pre-war 
normal,  crippling  not  only  itself  but  the  rest  of 
the  world  for  an  indefinite  period. 

Only  those  who  are  blind  fail  to  see  that  we  are 
already  in  Europe,  that  we  are  in  to  the  extent  of 
$11,000,000,000  and  more. 


II 

EUROPE,  DR.,  TO  U.  S.  A.  &  CO.,  CR., 
$16,000,000,000 

It  is  now  generally  known  in  Europe,  but  not 
so  generally  admitted,  that  had  the  United  States 
not  entered  the  war  Germany  would  have  dictated 
the  treaty  of  peace.  An  important  part  of  this 
country's  aid  consisted  in  providing  the  Allies 
with  foodstuffs  and  war  supplies  bought  here  with 
the  billions  loaned  to  the  Allies  when  they  were  at 
the  ends  of  their  financial  ropes.  A  total  of 
$10,000,000,000  was  made  available  by  Congress 
and  the  American  people  through  the  four  Liberty 
loans  for  "such  foreign  governments  then  en- 
gaged in  war  with  the  enemies  of  the  United 
States,"  their  obligations  to  bear  the  same  rate 
of  interest  and  contain  the  same  terms  and  con- 
ditions as  the  Liberty  Loan  Acts. 

The  form  of  obligation  or  promissory  note  taken 
from  the  foreign  government  borrowers  follows, 
the  British  form  being  used  as  the  example : 

Certificate  of  Indebtedness 

The  Government  of  the  United  Kingdom  of 
Great  Britain  and  Ireland,  for  value  received, 
promises  to  pay  the  United  States  of  America, 
or  assigns,  the  sum  of on  demand, 

13 


14  OUR  ELEVEN  BILLION  DOLLARS 

with  the  interest  from  the  date  hereof,  at  the  rate 
of  5  per  cent  per  annum.  Such  principal  sum  and 
the  interest  thereon  will  be  paid  at  the  Sub- 
Treasury  of  the  United  States  in  New  York,  or, 
at  the  option  of  the  holder,  at  the  Treasury  of  the 
United  States  in  Washington,  in  gold  coin  of  the 
United  States  of  America  of  the  present  standard 
of  weight  and  fineness,  or,  at  the  option  of  the 
holder,  at  the  Bank  of  England,  London,  England, 
in  pounds  sterling  at  the  fixed  rate  of  $4.76  7-16 
to  the  pound  sterling,  and  at  any  such  place  of 
payment  without  deduction  of  any  British  taxes, 
present  or  future. 

This  certificate  will  be  converted  by  the  Govern- 
ment of  the  United  Kingdom  of  Great  Britain  and 
Ireland,  if  requested  by  the  Secretary  of  the  Trea- 
sury of  the  United  States  of  America,  at  par, 
with  an  adjustment  of  accrued  interest,  into  an 
equal  amount  of  five  per  cent  convertible  gold 
bonds  of  the  Government  of  the  United  Kingdom 
of  Great  Britain  and  Ireland  conforming  to  the 
provisions  of  acts  of  Congress  known  respectively 
as  second  Liberty  bond  act,  third  Liberty  bond 
act  and  fourth  Liberty  bond  act.  If  bonds  of  the 
United  States  issued  under  authority  of  said  acts 
shall  be  converted  into  other  bonds  of  the  United 
States  bearing  a  higher  rate  of  interest  than  four 
and  one-half  per  cent  per  annum,  a  proportionate 
part  of  the  obligations  of  the  Government  of  the 
United  Kingdom  of  Great  Britain  and  Ireland 
of  this  series  acquired  by  the  United  States  under 


EUROPE,  DR.,  TO  U.  S.  A.  &  CO.,  CR.  15 

authority  of  said  acts  shall,  at  the  request  of  said 
Secretary  of  the  Treasury,  be  converted  into  obli- 
gations of  said  Government  of  the  United  King- 
dom of  Great  Britain  and  Ireland  bearing  interest 
at  a  rate  exceeding  that  previously  borne  by  this 
obligation  by  the  same  amount  as  the  interest  rate 
of  the  bonds  of  the  United  States  issued  upon  such 
conversion  exceeds  the  interest  rate  of  four  and 
one-half  per  cent  but  not  less  than  the  highest  rate 
of  interest  borne  by  such  bonds  of  the  United 
States. 

For    the    Government    of    the    United 
Kingdom  of  Great  Britain  and  Ireland. 
Dated  this day  of ,  19. . 

The  loans  made  under  the  Liberty  Loan  Acts 
to  nine  European  governments,  with  the  amounts 
paid  on  the  principal  and  interest  and  the  amounts 
of  interest  accrued  and  unpaid  up  to  November 
15,  1921,  are  given  in  Table  1  (see  page  16). 

Of  the  credits  established  for  European  gov- 
ernments there  remained  on  November  30,  1921, 
$39,309,463.41,  on  which  no  advances  had  then 
been  made.  In  addition  to  this  sum  $289,474,- 
689.44  is  left  as  an  unused  balance  from  the 
$10,000,000,000  originally  provided  by  Congress. 

Other  obligations  accepted  from  foreign  gov- 
ernments are  for  surplus  war  materials  remaining 
in  Europe  after  the  war  and  for  foodstuffs  for 
European  relief  through  the  American  Relief 
Administration  and  the  United  States  Grain  Cor- 


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poration.  These  obligations,  with  the  interest  paid 
and  the  interest  accrued  and  unpaid,  up  to 
November  15,  1921,  are  detailed  in  Table  2  (see 
page  17). 

Table  3  (see  page  19)  gives  the  totals  of  the 
original  obligations  and  the  total  debts  owed  on 
November  15, 1921,  by  eighteen  European  govern- 
ments and  so-called  governments  to  the  United 
States,  with  the  total  amounts  paid  on  account  of 
principal  and  interest  and  the  total  amounts  of 
unpaid  interest. 

The  total  sum  of  $11,313,860,127.27  owed  by 
these  eighteen  European  governments  is  now  the 
most  important  factor,  not  only  of  the  United 
States  government's  credits  but  also  in  the  field 
of  international  credit,  and  it  will  continue  so  for 
many  years  to  come. 

Nor  is  this  $11,313,860,127.27  all  that  Europe 
owes  us.  Private  loans,  investments  and  com- 
mercial transactions  must  be  added. 

The  government,  state,  municipal  and  corporate 
loans  placed  in  the  United  States  by  Europe  and 
outstanding  on  June  1,  1921,  amounted  to  $1,101,- 
826,200.  Table  4  (see  page  20)  shows  this  indebt- 
edness in  detail,  the  figures  being  based  on  com- 
pilations made  by  the  Guaranty  Trust  Company  of 
New  York,  from  the  most  accurate  and  complete 
information  available.  But  this  tabulation  does 
not  include  subscriptions  in  the  United  States  to 
foreign  loans,  since  the  amounts  of  such  subscrip- 
tions are  not  available,  nor  does  it  include  most 


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EUROPE,  DR.,  TO  U.  S.  A.  &  CO.,  CR,  21 

of  the  foreign  currency  issues  placed  in  this 
country  nor  issues  partly  sold  here  and  partly  in 
other  countries. 

To  this  total  of  $1,101,826,200  for  such  private 
loans  and  to  the  $11,313,860,127  of  United  States 
Government  loans  must  be  added  the  European 
investments  of  American  corporations  and  indi- 
viduals and  the  commercial  obligations  held  by 
Americans  against  Europe  for  manufactured  and 
raw  materials  sold  since  the  war.  Exact  figures 
for  these  two  classes  of  debts  cannot  be  given,  but 
conservative  estimates  place  them  at  not  less  than 
$3,500,000,000. 

Total  owed  by  Europe  to  United  States — about 
$16,000,000,000. 

Estimate  our  credits  in  foreign  countries  out- 
side of  Europe  at  $2,000,000,000,  and  it  is  seen  that 
in  seven  years  the  United  States,  which  in  1914 
was  a  debtor  country,  has  risen  to  the  position 
of  the  world's  leading  creditor  nation,  with 
$18,000,000,000  of  all  kinds  of  investments  abroad. 
This  is  some  two  billions  less  than  the  balance 
which  Great  Britain  had  abroad  in  1914,  after 
centuries  of  trading  and  investing  in  all  parts  of 
the  world.  When  the  war  broke  out  Great  Britain 
possessed  foreign  credits  amounting  to  more  than 
£4,000,000,000— more  than  $20,000,000,000  at  par 
of  exchange.  Of  this  amount  the  British  had  to 
use  about  one-fourth  during  the  war  to  meet 
foreign  obligations,  chiefly  for  American  products. 
To-day  Great  Britain,  at  the  same  time  our  chief 


22  OUR  ELEVEN  BILLION  DOLLARS 

debtor  and  her  continental  allies'  creditor,  is  in 
a  difficult  financial  situation,  but  she  is  not  trying 
to  collect  the  $9,000,000,000  of  war  debts  due  her 
from  her  former  allies,  if  only  for  the  reason  that 
she  knows  they  cannot  be  collected,  at  least  not 
in  actual  cash. 

For  the  sake  of  prosperity  in  the  United  States 
the  day  can  come  none  too  quickly  when  the  Amer- 
ican people  will  have  advanced  from  creditors 
who  want  "payment  in  30  days"  to  keen  investors 
in  foreign  industries,  who  will  say  to  those 
$16,000,000,000  and  more,  "Stay  in  Europe  and 
work  for  us;  we  don't  want  you  here,  we  can't 
afford  to  have  you  come  back  home." 


Ill 

BILLIONS  FOR  REFUNDING,  BUT  NOT 
ONE  CENT  FOR  CANCELLATION 

The  European  countries  owing  us  $11,000,000,- 
000  and  more  are  only  too  willing  to  settle  their 
debts — by  cancellation.  Such  an  easy  method  of 
ending  all  these  complicated  and  burdensome 
transactions  of  the  war  appeals  to  the  debtors  in 
Europe,  but  it  finds  little  support  among  the 
American  people,  who,  still  paying  for  the  war, 
feel  they  have  heard  too  much  on  the  subject  from 
European  sources. 

This  propaganda  of  cancellation,  born  shortly 
after  the  Armistice,  has  led  an  interesting  career. 
The  first  cancellation  proposal  to  reach  Washing- 
ton through  official  channels  was  contained  in  a 
cablegram  of  December  4,  1918,  sent  to  Secretary 
of  the  Treasury  McAdoo  through  the  American 
Embassy  in  London.  Here  is  a  part  of  this  cable- 
gram: "Chancellor  of  the  Exchequer  revived 
suggestions  made  before  of  possibility  of  cancella- 
tion of  all  loans  made  by  one  associated  govern- 
ment to  any  other  for  the  conduct  of  the  war.  I 
stated  that  so  far  as  I  know  such  an  idea  had  never 
for  a  moment  been  entertained  by  you,  and  the 
subject   was    dropped.     Similar    suggestions    in 

23 


24  OUR  ELEVEN  BILLION  DOLLARS 

unofficial  but  important  quarters  are  not  infre- 
quent in  London  and  Paris. 

"  Second.  Keynes  has  suggested  in  several  con- 
versations the  theory  that  future  aid  to  Allies 
should  now  be  taken  over  by  us  so  that  as  nearly 
as  possible  our  loans  to  Allies  should  equal  those 
of  the  British.  This  thought  appears  also  in  letter 
from  the  Chancellor  to  me,  received  to-day,  re- 
ferring to  Italian  situation  in  which  statement  is 
made  that  the  Chancellor  called  attention  of 
Stringher  to  fact  that  the  aggregate  of  British 
government  loans  to  Italy  were  double  those  of 
the  United  States  and  that  their  further  action 
toward  Italy  must  be  determined  by  Italian  ar- 
rangements with  us." 

Further  suggestions,  emanating  from  English 
sources,  kept  the  cancellation  ball  rolling.  Austen 
Chamberlain,  Chancellor  of  the  Exchequer, 
played  with  the  ball  a  number  of  times,  but  it 
was  President  Wilson  himself  who  kicked  it  right 
into  the  Treasury  Department,  which  prepared 
for  him  a  memorandum  beginning,  "Your  recent 
message  through  the  British  Embassy,  in  which 
among  other  matters  you  advocate  a  general  can- 
cellation of  intergovernmental  war  debts,  has 
been  received, ' '  and  ending  after  detailed  consid- 
eration of  the  subject  with  the  following: 

"A  proposal  that  the  United  States  should  can- 
cel its  debts  against  the  allied  governments  would 
simply  result,  in  effect,  in  the  cancellation  by  one 
of  the  principal  creditors  of  its  claims  in  order 


BILLIONS  FOR  REFUNDING  25 

that  the  claims  of  the  other  creditors  might  re- 
main intact,  and  would  transfer  from  the  peoples 
of  the  debtor  governments  to  the  shoulders  of 
the  people  of  the  United  States  the  taxes  necessary 
to  liquidate  the  outstanding  obligations  of  the 
United  States  government  representing  the  loans 
made  by  it  to  the  allied  governments.  The  United 
States  government  in  little  over  two  years  raised 
for  war  purposes  through  taxes  and  loans  approx- 
imately $37,000,000,000,  out  of  which  were  made 
to  the  allied  governments  the  loans  to  assist  them 
in  winning  the  war.  The  United  States  govern- 
ment has  neither  received  nor  sought  substantial 
material  benefits  from  the  war  or  under  the  terms 
of  the  treaty  of  peace.  On  the  other  hand,  the 
Allies,  although  having  suffered  greatly  in  loss  of 
lives  and  property,  have  under  the  terms  of  the 
treaty  and  otherwise  acquired  accessions  of  ter- 
ritories, properties,  raw  materials  and  other  ad- 
vantages, including  their  claims  against  Germany 
for  vast  indemnities.  It  would  seem  that  if  full 
account  were  taken  of  these  there  would  be  no 
incentive,  desire  or  reason  to  call  upon  the  United 
States  for  further  contributions." 

The  British  cancellation  proposals  continued 
under  discussion  in  cables,  letters  and  informal 
conversations  until  in  October,  1920,  Secretary 
of  the  Treasury  Houston  wrote  that  the  Treasury 
Department  refused  to  consider  cancellation  as 
a  form  of  settlement  of  the  debts,  this  after  the 
British  Prime  Minister,  Lloyd  George,  had  sent 


26  OUR  ELEVEN  BILLION  DOLLARS 

the  following  to  President  Wilson  on  August  5, 
1920 :  "I  come  now  to  another  question  I  wish  to 
write  you  about,  and  that  is  the  knotty  problem  of 
interallied  indebtedness.  Indeed,  I  promised  Mr. 
Rathbone  [an  assistant  secretary  of  the  Treasury 
who  was  abroad  the  winter  of  1919-1920  negoti- 
ating the  matter]  long  ago  that  I  would  write  to 
you  about  it,  but  I  have  had  to  put  it  off  for  one 
reason  and  another  till  now. 

"The  British  and  French  governments  have 
been  discussing,  during  the  last  four  months,  the 
question  of  giving  fixity  and  definiteness  to  Ger- 
many's reparation  obligations.  The  British  gov- 
ernment has  stood  steadily  by  the  view  that  it  was 
vital  that  Germany's  liabilities  should  be  fixed  at 
a  figure  which  it  was  within  the  reasonable  capac- 
ity of  Germany  to  pay,  and  that  this  figure  should 
be  fixed  without  delay  because  the  reconstruction 
of  Central  Europe  could  not  begin  nor  could  the 
Allies  themselves  raise  money  on  the  strength  of 
Germany 's  obligation  to  pay  them  reparation  un- 
til her  liabilities  had  been  exactly  defined.  After 
great  difficulty  with  his  own  people,  M.  Millerand 
found  himself  able  to  accept  this  view,  but  he 
pointed  out  that  it  was  impossible  for  France  to 
agree  to  accept  anything  less  than  it  was  entitled 
to  under  the  treaty,  unless  its  debts  to  its  Allies 
and  associates  in  the  war  were  treated  in  the  same 
way. 

"This  declaration  appeared  to  the  British  gov- 
ernment eminently  fair.    But  after  careful  con- 


BILLIONS  FOR  REFUNDING  27 

sideration  they  came  to  the  conclusion  that  it  was 
impossible  to  remit  any  part  of  what  was  owed  to 
them  by  France  except  as  part  and  parcel  of  all- 
around  settlement  of  interallied  indebtedness. 
I  need  not  go  into  the  reasons  which  led  to  this 
conclusion  which  must  be  clear  to  you;  but  the 
principal  reason  was  that  British  public  opinion 
would  never  support  a  one-sided  arrangement  at 
its  sole  expense,  and  that  if  such  a  one-sided  ar- 
rang  jment  were  made  it  could  not  fail  to  estrange 
and  eventually  embitter  the  relations  between  the 
American  and  British  people,  with  calamitous  re- 
sults to  the  future  of  the  world.  You  will  remem- 
ber that  Great  Britain  borrowed  from  the  United 
States  about  half  as  much  as  its  total  loans  to  the 
Allies,  and  that  after  America's  entry  into  the 
war,  it  lent  to  the  Allies  almost  exactly  the  same 
amount  as  it  borrowed  from  the  United  States  of 
America.  Accordingly  the  British  government  has 
informed  the  French  government  that  it  will  agree 
to  any  equitable  arrangement  for  the  reduction 
or  cancellation  of  interallied  indebtedness,  but 
that  such  an  arrangement  must  be  one  which  ap- 
plies all  around. 

4 'As  you  know,  the  representatives  of  the  Allies 
and  of  Germany  are  meeting  at  Geneva  in  a  week 
or  two  to  commence  discussion  on  the  subject  of 
reparation.  I  recognize  that  in  the  midst  of  a 
Presidential  election  and  with  Congress  not  in 
session,  it  is  impossible  for  the  United  States  to 
deal  with  this  question  in  a  practical  manner,  but 


28  OUR  ELEVEN  BILLION  DOLLARS 

the  question  is  one  of  such  importance  to  the  fu- 
ture of  Europe,  and  indeed  to  the  relations  be- 
tween the  allied  and  associated  powers,  that  I 
should  very  much  welcome  any  advice  which  you 
might  feel  yourself  able  to  give  me  as  to  the  best 
method  of  securing  that  the  whole  problem  could 
be  considered  and  settled  by  the  United  States 
government  in  concert  with  its  associates  at  the 
earliest  possible  moment  that  the  political  situ- 
ation in  America  makes  it  possible. 

' '  There  is  one  other  point  which  I  would  like  to 
add.  When  the  British  government  decided  that 
it  could  not  deal  with  the  question  of  the  debts 
owed  to  it  by  its  Allies  except  as  part  and  parcel 
of  an  all-around  arrangement  of  interallied  debts, 
the  Chancellor  of  the  Exchequer  told  Mr.  Bath- 
bone  that  he  could  not  proceed  any  further  with 
the  negotiations  which  they  had  been  conducting 
together  with  regard  to  the  postponement  of  the 
payment  of  interest  on  the  funding  of  Great  Brit- 
ain's debts  to  America.  I  should  like  to  make  it 
plain  that  this  is  due  to  no  reluctance  on  the  part 
of  Great  Britain  to  fund  its  debt,  but  solely  to  the 
fact  that  it  cannot  bind  itself  to  any  arrangement 
which  would  prejudice  the  working  of  any  inter- 
allied arrangement  which  may  be  reached  in  the 
future.  If  some  method  can  be  found  for  funding 
the  British  debt  which  does  not  prejudice  the 
larger  question,  the  British  government  would 
be  glad  to  fall  in  with  it." 

So  much  for  Lloyd  George  and  his  opinion  on 


BILLIONS  FOR  REFUNDING  29 

refunding  and  cancellation,  which  differs  radi- 
cally from  the  official  American  point  of  view. 
Before  the  Senate  Committee  on  Finance,  Secre- 
tary of  the  Treasury  Mellon  has  given  his  assur- 
ance that  cancellation  is  not  his  idea  of  the  man- 
ner in  which  Europe's  debts  to  the  United  States 
should  be  settled : 

The  Chairman  (Senator  Penrose).  Mr.  Mellon, 
there  is  no  intention  on  the  part  of  the  present 
Administration  to  cancel  or  forgive  any  part  of 
this  indebtedness  of  foreign  nations,  is  there? 

Secretary  Mellon.  No. 

The  Chairman.  That  has  been  bruited  abroad, 
though  so  far  as  conditions  are  at  present  it  is 
absolutely  without  foundation. 

Secretary  Mellon.  The  examination  of  all 
these  memoranda  in  the  cases  shows  that  there  has 
not  anything  been  done  nor  has  any  suggestion 
been  made  on  the  part  of  the  Treasury  in  that  di- 
rection. They  have  all  along  taken  the  position 
that  these  are  obligations  owing  to  this  country, 
and  valid  obligations  that  must  be  eventually  paid. 

To  this  denial  of  Secretary  Mellon 's  was  added 
a  statement  from  the  White  House  that  our  Gov- 
ernment did  not  intend  to  cancel  the  debts  owed 
by  the  governments  of  Europe. 

But  the  propaganda  of  cancellation  continues, 
not  only  on  the  part  of  the  debtors  but  even  with 
the  aid  of  a  few  Americans.  Among  those  in  this 
country  urging  cancellation  are  Justice  John  H. 


30  OUR  ELEVEN  BILLION  DOLLARS 

Clarke,  of  the  Supreme  Court;  Professor  Edwin 
Seligman,  of  Columbia  University,  and  Otto  H. 
Kahn,  of  Kuhn,  Loeb  &  Co.  They  consider  that 
our  war  loans  should  be  regarded  as  a  part  of 
America's  contribution  to  the  war. 

Nevertheless,  these  obligations  of  $11,000,000,- 
000  and  more  constitute  a  just  debt,  both  legally 
and  morally.  Nothing  in  the  original  loans  or  in 
our  association  with  the  Allies  affords  any  basis 
for  the  claim  that  the  debts  should  be  considered 
as  an  American  contribution  to  the  war  and  there- 
fore cancelled.  When  the  loans  were  provided  for 
by  Congress  and  later  negotiated  with  representa- 
tives of  the  allied  governments  the  sums  involved 
were  not  looked  upon  as  gifts,  but  as  dollars — not 
pounds,  francs  or  lire — borrowed  by  the  United 
States  government,  which,  while  loaning  these 
dollars  to  European  governments,  promptly  paid 
France,  Italy  and  Great  Britain  for  all  services 
and  supplies. 

Assume,  for  the  moment,  that  Europe's  entire 
$11,000,000,000  indebtedness  to  our  government  is 
wiped  out  to-morrow  by  an  act  of  Congress.  "Would 
the  cancelling  of  the  debts  assure  the  economic 
recovery  of  Europe?  Would  currency  become 
stabilized?  Would  our  export  trade  and  industrial 
situation  improve  ? 

If  Europe  cast  aside  her  worn-out  economic 
and  political  machinery,  created  new  institutions 
to  fit  the  needs  of  new  conditions,  cancellation 
would  help  her  economic  recovery  and  hasten  the 


BILLIONS  FOR  REFUNDING  31 

process  of  stabilization.  But  thorough  reform  in 
Europe  would  eliminate  the  need  for  cancellation. 
So  long  as  Europe  remains  what  she  is,  so  long  as 
she  fails  to  effect  economic  and  political  reforms, 
wiping  this  immense  debt  off  her  slate  would  not 
increase  production  and  fixed  capital,  would  not 
put  workers  into  factories  and  on  the  land  under 
more  favorable  living  conditions,  would  not  re- 
lieve the  masses  of  their  burdens  of  taxation. 
Cancellation  would  not  mean  better  food,  better 
clothing,  better  homes,  better  working  hours  for 
any  but  politicians,  speculators  and  holders  of 
large  sums  of  money.  For  Europe  of  to-day  the 
cancelling  of  inter-governmental  debts  would 
mean  freedom  to  continue  wasteful  methods  and 
to  spend  larger  sums  on  preparations  for  war. 

In  particular,  cancellation  would  mean  more  for 
Great  Britain  than  for  any  other  country,  and  in 
this  unrevealed  fact  may  lie  the  reason  that  Lon- 
don has  fostered  the  cancellation  idea  and  has 
persistently  kept  it  before  the  world.  If  the  inter- 
governmental debts  were  all  cancelled,  the  United 
States  would  lose  $11,000,000,000  and  more, 
whereas  Great  Britain,  the  only  other  important 
creditor  nation,  would  lose  only  about  $5,000,000,- 
000,  since  she  owes  approximately  $4,000,000,000 
to  us,  while  other  governments  owe  her  about 
$9,000,000,000.  Our  foreign  credits  would  be  re- 
duced by  this  cancellation  process  from  $18,000,- 
000,000  to  $7,000,000,000,  and  Great  Britain's  loans 
and  investments  abroad  would  stand  at   about 


32  OUR  ELEVEN  BILLION  DOLLARS 

$15,000,000,000.  By  cancellation  Great  Britain 
would  displace  the  United  States  as  the  world's 
chief  creditor  nation. 

As  matters  now  stand,  the  United  States'  in- 
vestment in  the  war  totals  $45,000,000,000,  the 
only  items  on  the  credit  side  being  some  German 
shipping  and  the  famous  eleven  billions.  The 
gross  cost  of  the  war  to  Great  Britain  is  put  at 
about  $52,000,000,000,  against  which  may  be  cred- 
ited a  certain  amount  of  German  shipping,  an 
uncertain  amount  of  German  reparation  money, 
$9,000,000,000  owed  to  her  by  other  governments, 
and  Mesopotamia,  German  East  Africa,  German 
West  Africa,  Togoland  and  a  number  of  Pacific 
islands.  About  $55,000,000,000  is  the  estimated 
gross  cost  of  the  war  to  France.  Against  this  sum 
France  can  credit  Alsace-Lorraine,  Germany's 
rights  in  equatorial  Africa,  the  Saar  Basin  mines, 
coal,  live  stock  and  paid  and  unpaid  reparation 
sums.  Italy's  war  cost  is  estimated  at  less  than 
$20,000,000,000,  against  which  are  to  be  credited 
about  12,000  square  miles  of  Austro-Hungarian 
territory,  large  shipments  of  coal  and  an  unsettled 
reparation  amount. 

At  the  Peace  Conference  we  asked  for  no  terri- 
tory, only  for  the  German  shipping  seized  in  our 
harbors  and  for  world-wide  peace,  and  despite  the 
invaluable  services  rendered  by  the  United  States 
in  the  war  we  have  had  little  consideration  from 
the  Allies  except  when  they  have  thought  their 
purses  would  benefit.    This  selfish  side  of  Europe 


BILLIONS  FOR  REFUNDING  33 

the  American  people  know  only  too  well,  and  Con- 
gress, representing  the  American  people,  gave  it 
full  consideration  in  preparing  the  bill  which 
provides  for  the  refunding  of  the  debts  owed  the 
United  States  government  by  eighteen  govern- 
ments and  so-called  governments  of  Europe. 

Supported  by  President  Harding,  Secretary 
Mellon  asked  Congress  to  pass  a  bill  authorizing 
the  Secretary  of  the  Treasury  "from  time  to  time 
to  refund  or  convert,  and  to  extend  the  time  of 
payment  of  the  principal  or  the  interest,  or  both, 
of  any  obligation  of  any  foreign  government  now 
owing  to  the  United  States  of  America,  or  any 
obligation  of  any  foreign  government  hereafter 
received  by  the  United  States  of  America  (includ- 
ing obligations  held  by  the  United  States  Grain 
Corporation),  arising  out  of  the  European  War, 
into  bonds  or  other  obligations  of  such,  or  of  any 
other,  foreign  government,  and  from  time  to  time 
to  receive  bonds  of  any  foreign  government  in 
substitution  for  those  now  or  hereafter  held  by 
the  United  States  of  America,  in  such  form  and  of 
such  terms,  conditions,  date  or  dates  of  maturity, 
and  rate  or  rates  of  interest,  and  with  such  secur- 
ity, if  any,  as  shall  be  deemed  for  the  best  interests 
of  the  United  States  of  America,  and  to  adjust  and 
settle  any  and  all  claims,  not  now  represented  by 
bonds  or  obligations,  which  the  United  States  of 
America  now  has  or  hereafter  may  have  against 
any  foreign  government  and  to  accept  securities 
therefor." 


34  OUR  ELEVEN  BILLION  DOLLARS 

The  Senate  Committee  on  Finance  was  unwill- 
ing to  report  a  bill  giving  so  free  a  hand  to  the 
Secretary  of  the  Treasury.  The  hearings  held  on 
the  bill  in  June  and  July,  1921,  and  its  consider- 
ation by  Congress  early  in  1922  brought  out  strong 
opposition  on  the  part  of  various  senators  against 
any  suggestion  of  cancellation,  against  acceptance 
of  bonds  of  other  than  the  debtor  nations,  espec- 
ially German  bonds,  and  against  any  provisions 
other  than  a  specified  minimum  rate  of  interest 
and  a  definite  limit  upon  the  period  over  which 
the  debts  might  be  refunded. 

As  passed  by  the  Senate  and  the  House  of  Rep- 
resentatives and  signed  by  President  Harding  on 
February  9,  1922,  although  he  objected  to  the 
changes  made  in  the  original  bill,  the  "act  to 
create  a  commission  authorized  under  certain 
conditions  to  refund  or  convert  obligations  of 
foreign  governments  held  by  the  United  States  of 
America,  and  for  other  purposes,"  is  as  follows: 

Be  it  enacted  by  the  Senate  and  House  of  Rep- 
resentatives of  the  United  States  of  America  in 
Congress  assembled,  That  a  World  War  Foreign 
Debt  Commission  is  hereby  created  consisting  of 
five  members,  one  of  whom  shall  be  the  Secretary 
of  the  Treasury,  who  shall  serve  as  chairman, 
and  four  of  whom  shall  be  appointed  by  the  Presi- 
dent, by  and  with  the  advice  and  consent  of  the 
Senate. 

Sec.  2.  That,   subject  to  the   approval  of  the 


BILLIONS  FOR  REFUNDING  35 

President,  the  commission  created  by  section  1 
is  hereby  authorized  to  refund  or  convert,  and  to 
extend  the  time  of  payment  of  the  principal  or  the 
interest,  or  both,  of  any  obligation  of  any  foreign 
Government  now  held  by  the  United  States  of 
America,  or  any  obligation  of  any  foreign  Gov- 
ernment hereafter  received  by  the  United  States 
of  America    (including  obligations  held  by  the 
United  States  Grain  Corporation,  the  War  De- 
partment, the  Navy  Department,  or  the  American 
Relief  Administration),  arising  out  of  the  World 
War,  into  bonds  or  other  obligations  of  such  for- 
eign Government  in  substitution  for  the  bonds  or 
other  obligations  of  such  Government  now  or  here- 
after held  by  the  United  States  of  America,  in 
such  form  and  of  such  terms,  conditions,  date  or 
dates  of  maturity,  and  rate  or  rates  of  interest, 
and  with  such  security,  if  any,  as  shall  be  deemed 
for  the  best  interests  of  the  United  States  of 
America:  Provided,  That  nothing  contained  in 
this  Act  shall  be  construed  to  authorize  or  em- 
power the  commission  to  extend  the  time  of  ma- 
turity of  any  such  bonds  or  other  obligations  due 
the  United  States  of  America  by  any  foreign  Gov- 
ernment beyond  June  15,  1947,  or  to  fix  the  rate 
of  interest  at  less  than  4%  Per  centum  per  annum : 
Provided  further,  That  when  the  bond  or  other  ob- 
ligation of  any  such  Government  has  been  re- 
funded or  converted  as  herein  provided,  the  au- 
thority of  the  commission  over  such  refunded  or 
converted  bond  or  other  obligation  shall  cease. 


36  OUR  ELEVEN  BILLION  DOLLARS 

Sec.  3.  That  this  Act  shall  not  be  construed  to 
authorize  the  exchange  of  bonds  or  other  obliga- 
tions of  any  foreign  Government  for  those  of  any 
other  foreign  Government,  or  cancellation  of  any 
part  of  such  indebtedness  except  through  payment 
thereof. 

Sec.  4.  That  the  authority  granted  by  this  Act 
shall  cease  and  determine  at  the  end  of  three  years 
from  the  date  of  the  passage  of  this  Act. 

Sec.  5.  That  the  annual  report  of  this  commis- 
sion shall  be  included  in  the  Annual  Report  of  the 
Secretary  of  the  Treasury  on  the  state  of  the 
finances,  but  said  commission  shall  immediately 
transmit  to  the  Congress  copies  of  any  refunding 
agreements  entered  into,  with  the  approval  of  the 
President,  by  each  foreign  Government  upon  the 
completion  of  the  authority  granted  under  this 
Act. 

This  refunding  act  contains  no  provision  for 
the  payment  of  accrued  interest  or  of  future  inter- 
est at  any  stated  periods.  The  World  War  For- 
eign Debt  Commission  authorized  by  the  act  had 
as  its  original  members  Secretary  of  the  Treasury 
Mellon,  Secretary  of  State  Hughes,  Secretary  of 
Commerce  Hoover,  Senator  Reed  Smoot  of 
Utah,  and  Representative  Theodore  Burton  of 
Ohio. 

The  answer  of  the  British  treasury  to  the 
enactment  of  the  refunding  bill  was  the  presenta- 
tion of  a  plan  in  March,  1922,  to  wipe  out  all 


BILLIONS   FOR  REFUNDING  37 

intergovernmental  war  debts  and  credit  the 
amount  to  the  account  of  German  reparations. 
This  reduction  of  German  reparation  payments, 
according  to  the  Chancellor  of  the  Exchequer, 
Sir  Robert  Home,  was  dependent  upon  the  United 
States'  cancellation  of  Europe's  $11,000,000,000 
debt.  In  other  words,  Lloyd  George  had  revived 
the  scheme  to  involve  the  United  States  in  the 
payment  of  an  important  part  of  the  German 
reparation  sums  demanded  by  the  Allies. 

The  passing  of  the  refunding  bill  by  Congress 
and  the  establishment  of  the  commission  to  carry 
out  its  provisions  should  have  served  to  make 
known  to  Europe,  if  she  had  any  doubts  on  the 
subject,  that  the  great  majority  of  the  American 
people  are  willing  to  provide  billions  for  refund- 
ing, but  not  one  cent  for  cancellation. 


rv 

INCREASING  DEBTS  AND  UNBALANCED 
BUDGETS 

With  the  enactment  of  the  refunding  bill  the 
United  States  asked  the  eighteen  debtor  countries 
of  Europe  to  recognize  their  debts  to  this  govern- 
ment, end  all  talk  of  cancellation  and  get  down  to 
business.  And  settling  down  to  business  on  the 
part  of  the  continental  debtors  involves  their  in- 
ternal debts  as  well  as  the  large  sums  owed  to  the 
chief  creditor  nations,  England  and  the  United 
States.  Juggling  budgets  instead  of  balancing 
them  does  not  conceal  their  latent  bankruptcy, 
does  not  attract  the  American  investor. 

Of  the  European  belligerents  and  the  new  coun- 
tries born  at  Versailles  not  one  actually  made 
both  ends  meet  last  year.  Their  balance  sheets 
show  gaps  of  varying  sizes  between  income  and 
gross  expenditure.  Enormous  deficits  produced 
by  the  war  have  kept  expenditures  at  an  abnormal 
level,  but  the  fiscal  systems  of  European  state 
finance  leave  much  to  be  desired,  especially  by 
a  creditor  or  a  possible  investor.  On  top  of  heavy 
current  expenditures  are  piled  interest  on  war 
debts — none  required  as  yet  on  our  loans — pen- 
sions,  subsidies   for  food,  coal,   unemployment, 

38 


DEBTS  AND  BUDGETS  39 

housing  and  railroads,  and  appropriations  for 
armaments.  Expenditures  for  war,  past  and  fu- 
ture, represent  a  great  proportion  of  the  burden 
of  taxation.  In  some  of  the  countries  past-war 
taxes  plus  next-war  taxes,  that  is,  current  military 
expenditures,  constitute  a  crushing  burden. 

Even  some  of  the  neutral  countries  of  Europe 
are  having  serious  financial  troubles.  Their  bud- 
get difficulties  are  due,  for  the  most  part,  to  the 
growth  of  government  expenses  caused  by  the 
rise  of  prices  and  the  granting  of  subsidies,  al- 
though in  the  case  of  Holland  and  Switzerland 
heavy  expenditure  was  directly  caused  by  the 
war.  The  neutrals  have  solved  their  problem  by 
increased  taxation,  with  the  exception  of  Holland, 
Spain  and  Switzerland,  which  borrowed  large 
sums.  However,  the  European  neutrals  all  added 
to  their  gold  reserves  during  the  war,  opened 
credits  for  the  belligerents  and  repatriated  con- 
siderable amounts  of  national  securities  held 
abroad. 

The  general  financial  situation  of  neutrals  and 
belligerents  is  represented  in  Table  5  (see  pages 
40  and  41),  compiled  largely  from  the  reports 
of  the  International  Financial  Conference  at  Brus- 
sels. This  table  gives  the  net  budgets  of  each 
country,  unless  otherwise  noted,  the  revenue 
figures,  including  receipts  from  all  sources  except 
loans,  and  the  expenditure  figures,  covering  all 
items  of  both  ordinary  and  extraordinary  budgets 
except  in  case  of  provision  for  amortization. 


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42  OUR  ELEVEN  BILLION  DOLLARS 

With  the  amazing  figures  of  Table  5  before 
it  the  Brussels  conference  pointed  out  that 
the  first  duty  of  public  finance  is  for  a  govern- 
ment to  pay  its  way,  otherwise  there  is  no  founda- 
tion for  its  own  economic  life  or  for  receiving  as- 
sistance from  others.  The  resolutions  of  the  con- 
ference on  public  finance  called  upon  the  govern- 
ments to  reduce  government  expenditure,  to  bring 
outlay  within  the  limits  of  revenue  by  rigidly  re- 
ducing all  armament  costs  and  by  abandoning  all 
uneconomical  and  artificial  measures,  such  as  the 
artificial  cheapening  of  foodstuffs,  coal  and  other 
commodities,  the  payment  of  unemployment  doles, 
and  the  maintenance  of  railroad  fares,  postal  rates 
and  other  government  services  involving  deficits. 

The  resolutions  emphasized  the  fact  that  the  re- 
duction of  prices  and  the  restoration  of  prosper- 
ity are  dependent  on  the  increase  of  production, 
one  of  the  most  serious  obstacles  to  this  increase 
being  the  continued  excess  of  government  expendi- 
ture over  revenue  as  represented  in  the  budget 
deficits,  which  involve  further  inflation  of  credit, 
further  depreciation  in  the  purchasing  power  of 
domestic  currency,  increased  instability  of  foreign 
exchange  and  further  rises  in  prices  and  in  the 
cost  of  living. 

The  total  internal  debt  of  the  European  bellig- 
erents, converted  into  dollars  at  par,  amounts  to 
over  $150,000,000,000,  compared  with  approxi- 
mately $17,000,000,000  in  1913:  Even  when  full 
allowance  is  made  for  the  return  of  depreciated 


DEBTS  AND  BUDGETS  43 

currencies  toward  their  normal  value,  the  post- 
war debt  represents  a  tremendous  burden  in  pro- 
portion to  the  total  national  income  of  the  bellig- 
erent countries.  However,  in  the  opinion  of  the 
Brussels  conference  "the  external  debt,  amount- 
ing to  about  $11,000,000,000  due  to  the  United 
States  and  to  £1,750,000,000  due  to  the  United 
Kingdom,  presents  an  even  more  difficult  problem, 
because  in  nearly  every  case  it  is  payable  in  a 
currency  which  is  less  depreciated  than  that  of  the 
country  concerned." 

The  effect  of  the  war  on  government  indebted- 
ness and  the  results  of  post-war  profligacy  appear 
in  Table  6  (see  pages  44  and  45),  based  upon  statis- 
tics assembled  by  O.  P.  Austin,  of  the  National 
City  Bank  of  New  York.  These  figures,  in  dollars 
at  pre-war  value,  taken  with  the  totals  for  the 
remaining  countries  of  the  world,  give  an  increas- 
ing total  of  world  indebtedness,  from  $43,000,- 
000,000  in  1913  to  $205,000,000,000  in  1918,  the 
last  year  of  the  war;  $295,000,000,000  in  1919,  the 
first  year  of  peace,  and  an  estimated  total  of 
$400,000,000,000  for  1921,  three  years  after  the 
Armistice. 

That  the  economic  situation  of  the  world  is  se- 
rious may  be  seen  even  by  the  man  who  runs  and 
reads.  Europe's  affairs  approach  nearest  to  the 
critical  point,  a  situation  that  may  be  charged  to 
the  victorious  Allies,  unconquered  Germany  and 
Bolshevist  Russia,  which  have  provided  the  world 
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46  OUR  ELEVEN  BILLION  DOLLARS 

violations  of  economic  and  moral  laws,  violations 
which  have  demoralized  domestic  and  foreign 
business  and  brought  suffering  to  millions. 

Picture  this  bungling,  debt-ridden  Europe,  with 
her  foolish,  frenzied,  fantastic  finances,  her  peo- 
ples suffering  from  underconsumption,  with  fac- 
tories working  at  part  capacity  or  not  at  all, 
money  inflated,  credits  frozen,  loans  unliquidated, 
budgets  unbalanced. 

Great  Britain — suffering  from  diminished  for- 
eign trade,  unemployment  and  the  heaviest  taxa- 
tion in  Europe,  but  fortunate  in  having  in  the 
English  and  Scotch  the  most  honest  and  capable 
business  men  in  Europe. 

France — burdened  with  a  debt  of  about  300,000,- 
000,000  francs,  suffering  from  the  fear  of  future 
German  aggression,  and  with  good  reason,  but 
using  bad  judgment  in  seeking  safety  and  in- 
creased power  through  the  same  methods  of  Eu- 
ropean diplomacy  that  brought  on  the  last  war, 
losing  friends  and  gaining  little. 

Belgium — a  small  country  with  a  big  debt,  more 
or  less  forgotten  because  it  is  demanding  little 
and  going  quietly  about  its  business,  or  as  much 
as  the  country  has  been  able  to  regain. 

Italy — here  to-day,  but  where  she  will  be  to- 
morrow nobody  knows,  rolling  up  a  public  debt 
of  110,000,000,000  lire  and  trying  to  put  her  finan- 
cial house  in  order,  without  any  apparent  inten- 
tion of  providing  for  the  payment  of  her  debt  to 
the  United  States. 


DEBTS  AND  BUDGETS  47 

Germany — a  country  financially  crippled  but 
industrially  and  mentally  active,  whose  leaders 
know  just  what  they  are  doing  and  why  they  are 
doing  it,  even  less  to  be  trusted  than  the  Kaiser's 
Germany,  which  destroyed  the  "scrap  of  paper," 
the  Lusitania,  Rheims  Cathedral,  Belgian  and 
French  homes  and  industries. 

Austria — a  war  wreck,  weak  and  hungry,  left 
prostrate  by  the  Big  Four,  a  victim  of  the  worst 
profiteers  of  Europe,  overburdened  with  money, 
paper  money. 

Hungary — another  case  of  total  disability,  bru- 
tally dismembered  at  the  Peace  Conference,  and 
robbed  by  the  Allies,  Bolshevists  and  Rumanians 
of  all  but  her  nationalism. 

The  Balkan  States — as  Balkanic  as  ever,  but 
their  rivalries,  grievances  and  needs  now  over- 
shadowed by  Balkanized  Central  Europe. 

The  new  States — all  of  them,  including  Czecho- 
slovakia, Jugo-Slavia,  Poland,  the  Baltic  States, 
not  to  forget  the  Irish  Free  State,  suffering  from 
the  internal  pains  of  party  politics,  from  the 
egoism  common  to  all  small  nations  upon  achiev- 
ing their  "rights,"  and  from  lack  of  economic 
knowledge  and  experience. 

And  we,  the  people  of  the  United  States,  what 
is  our  situation? 

"We  have  not  been  innocent  of  economic  sins 
committed  during  and  since  the  war,  of  inflation, 
of  private  and  government  waste,  of  excess  of  ex- 
penditures over  receipts,  of  business  stupidities 


48  OUR  ELEVEN  BILLION  DOLLARS 

surpassing  belief.  But  we  have  reformed  to  a 
large  extent,  business  has  improved,  although  it 
is  far  from  its  new  post-war  normal,  and  basic 
financial  conditions  are  better  than  in  1921. 

We  are  better  off  than  any  European  country, 
but  this  does  not  mean  that  the  economic  situation 
of  the  United  States  is  satisfactory.  Europe, 
looking  at  us,  sees  only  a  nation  of  overwhelming 
wealth,  our  $3,657,000,000  of  gold  exaggerated  into 
a  much  larger  sum,  our  manufactured  products 
and  raw  materials  not  to  be  desired  as  much  as 
fine  gold. 

Europe  estimates  our  wealth  in  terms  of  gold, 
but  wealth  is  measured  in  value  of  goods  rather 
than  in  metal.  Our  wealth  increased  during  the 
period  from  1914  to  1917,  but  in  terms  of  goods 
it  actually  decreased  after  our  entrance  into  the 
war,  even  though  our  towns  and  lands  were  not 
devastated  by  the  enemy.  Our  products  and  ship- 
ping were  destroyed  at  sea ;  our  railroads  deteri- 
orated ;  our  leading  industries  were  diverted  from 
peace-time  commodities  to  war  supplies ;  inflation 
and  wasteful  expenditure  have  cost  public  and 
government  dearly;  and  the  country  has  not  yet 
seen  the  end  of  the  costly  readjustment  of  busi- 
ness. All  this  has  meant  the  loss  of  wealth;  be- 
sides, we  owe  ourselves  almost  twenty-four  times 
the  government  debt  of  1914,  this  new  and  enor- 
mous debt  to  be  liquidated  only  by  taxing  our  in- 
comes, properties  and  products.  The  great  in- 
crease in  our  public  debt  as  a  result  of  the  war  is 


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50  OUK  ELEVEN  BILLION  DOLLARS 

shown  in  Table  7  (see  page  49),  with  figures  given 
for  the  outstanding  debt  on  July  1  of  each  year. 

The  public  debt  of  the  United  States  on  Decem- 
ber 31,  1921,  with  a  classification  differing  from 
that  given  in  the  tabulation  on  page  49  follows : 
pre-war  debt,  $883,784,050;  Liberty  bonds, 
$15,207,389,400;  Victory  bonds,  $3,548,289,500; 
notes,  series  B-1924,  $390,706,100;  war  savings 
certificates  of  indebtedness,  $2,195,595,000;  trea- 
sury notes,  series  A-1924,  $311,191,600;  treasury 
notes,  series  B-1924,  $390,706,100;  war  savings 
securities,  $651,844,374;  matured  debt,  $11,867,- 
140;  debt  bearing  no  interest,  $238,317,187.  The 
total  gross  debt  amounted  to  $23,438,984,351, 
showing  a  net  decrease  of  $538,819,109  from  the 
public  debt  of  December  31, 1920. 

That  the  financial  situation  of  the  United  States 
government  is  no  worse  is  due  to  notable  econo- 
mies and  reforms  effected  under  the  present  Ad- 
ministration. Important  reductions  in  govern- 
ment expenditure  and  in  taxation  have  been  insti- 
tuted, and  the  new  Federal  budget  is  preparing 
the  way  for  additional  decreases  in  disbursements. 
For  the  fiscal  year  1920-21,  ended  June  30, 
receipts  were  $5,624,000,000  and  expenditures 
$5,538,000,000.  For  the  year  ending  June  30, 1922, 
income  is  expected  to  amount  to  $3,943,500,000 
and  outlay  $3,968,000,000.  The  Director  of  the 
Budget,  General  Charles  G.  Dawes,  anticipated 
that  during  the  year  1922-23  government  receipts 
would  be  $3,338,000,000  and  expenditures  $3,506,- 


DEBTS  AND  BUDGETS  51 

000,000,  the  deficiency  to  be  met  by  the  release  of 
$100,000,000  tied  up  in  the  Navy  Department,  and 
by  additional  economies  in  government  operation. 
These  figures  show  that  the  expenditures  of  the 
United  States  government  have  fallen  $1,570,- 
000,000  from  1921  to  1922,  and  that  from  1921  to 
1923  the  total  reduction  should  amount  to 
$2,032,000,000—no  small  burden  removed  from  the 
people  of  the  United  States. 


V 
EUROPE'S  PAPER,  AMERICA'S  GOLD 

The  public  debts  of  Europe,  increased  to  huge 
proportions  by  the  war,  are  being  financed  pri- 
marily by  the  printing  press,  although  this  method 
increases  the  expenses  of  government  and  public 
during  peace  as  well  as  during  war.  Behind  the 
guns  and  shells  of  the  World  War  were  printing 
presses  and  paper ;  the  guns  have  long  since  ceased 
firing,  but  the  presses  are  still  operating,  in  some 
cases  at  full  capacity.  Their  outpourings  of  incon- 
vertible paper  serve  only  to  enlarge  the  vicious 
circle  of  inflation,  increasing  debts,  growing  treas- 
ury deficits,  decreased  exchange  values,  rises  in 
prices  of  commodities  and  services. 

Trying  to  meet  budget  deficits  by  printing  more 
currency  always  has  and  always  will  result  in 
further  depreciation,  since  revenues  never  in- 
crease rapidly  enough  to  overtake  the  depreci- 
ation and  permit  the  issuing  of  paper  to  be  halted. 
Let  inflation  continue  long  enough  and  it  brings 
about  the  disorganization  of  trade  and  industry 
and  the  demoralization  of  the  people. 

Until  budgets  are  balanced  no  government  can 
stop  inflation,  which  Professor  Gustav  Cassel 
describes  as  the  combined  result  of  an  artificial 
creation  of  purchasing  power  in  order  to  finance 

52 


EUROPE'S  PAPER,  AMERICA'S  GOLD       53 

government  expenditure  beyond  the  real  capacity 
of  the  country,  and  of  the  falsification  of  the 
money  market  by  an  abnormally  low  rate  of  in- 
terest, in  both  cases  with  the  assistance  of  an 
arbitrary  supply  of  legal  tender.  Inflation  adds 
nothing  to  the  real  value  on  which  the  currency's 
buying  power  is  based,  but  depreciates  the  cur- 
rency, reducing  the  actual  purchasing  power  of 
each  and  every  unit.  In  other  words,  inflation  ad- 
vances prices. 

Once  budgets  are  balanced  and  inflation  stopped 
governments  are  confronted  with  the  problem  of 
deflation,  the  ticklish  process  of  contracting  paper 
issues  and  so  decreasing  the  means  of  payment  in 
relation  to  the  nation's  business.  The  most  diffi- 
cult problem  connected  with  inflation  is  to  bring 
it  to  a  stop  once  it  is  started,  while  the  chief  task 
with  deflation  is  to  stop  it  at  the  right  point. 

Unless  it  is  to  be  an  operation  costly  both  to 
the  government  and  to  the  public,  deflation  has  to 
be  carried  out  by  slow  degrees  and  with  extreme 
caution.  Various  countries,  including  our  own, 
have  had  costly  experiences  with  the  contraction 
of  paper  issues.  It  would  seem  that  we  should 
have  learned  our  lesson  from  the  deflation  scheme 
which  threatened  financial  and  commercial  dis- 
aster for  the  country  after  the  Civil  War.  Infla- 
tion brought  us  the  false  prosperity  of  1919-20, 
deflation  added  to  the  depression  of  1920-21, 
bringing  new  troubles  and  little  relief  from  the 
high  cost  of  living.    And  now  we  are  suffering 


54  OUR  ELEVEN  BILLION  DOLLARS 

from  an  unusual  form  of  inflation — too  much 
gold. 

After  bitter  experiences  it  is  becoming  evident 
to  the  business  man  that  inflation  and  deflation 
are  twin  evils  instead  of  being  antidotes  one  of  the 
other,  a  point  which  Professor  Irving  Fisher  has 
been  preaching  in  this  country,  fearing  that  the 
danger  ahead  for  us  is  re-inflation  as  a  reaction 
against  the  recent  rapid  deflation,  a  false  remedy 
for  our  war  inflation.  This  secondary  period  of 
inflation  will  come,  he  thinks,  as  a  result  of  an 
upward  move  in  the  price  level,  and  afterward  the 
usual  deflation  process,  unless  the  double  object 
lesson  of  the  past  two  years  serves  to  provide  a 
way  of  escape. 

Most  of  our  debtors  in  Europe,  still  issuing 
money  instead  of  withdrawing  it  from  circulation, 
are  occupied  with  the  troubles  of  inflation  rather 
than  with  those  of  deflation.  They  are  face  to 
face  with  the  fact  that  their  public  debts  can  be 
reduced  only  through  payment  or  through  repudi- 
ation. With  regard  to  the  $11,000,000,000  owed 
the  United  States  government,  Congress  has 
made  known  through  the  refunding  bill  that  it 
expects  payment,  but  there  are  individuals,  com- 
panies and  banks  in  this  country  that  may  look 
forward  to  heavy  losses  through  repudiation 
by  various  European  governments  of  their  paper 
obligations.  Already  several  of  the  minor  gov- 
ernments have  indulged  in  repudiation  by  con- 
verting a  part  of  their  paper  currency  at  a  dis- 


EUKOPE'S  PAPER,  AMERICA'S  GOLD       55 

count — conversion  they  call  it,  but  it  is  nothing 
more  nor  less  than  partial  repudiation. 

The  attempts  to  repudiate  huge  sums  involving 
creditor  nations  as  well  as  the  nationals  of  the 
debtor  nations  will  not  all  succeed,  but  repudia- 
tion on  an  extensive  scale  will  come.  In  those 
European  countries  where  inflation  has  reached 
almost  unbelievable  proportions,  as  in  Austria, 
Poland  and  Eussia,  it  is  impossible  that  the  value 
of  their  out-standing  paper  will  ever  be  brought 
back  to  par.  This  is  a  fact,  an  unpleasant  one  for 
many  investors  and  gamblers  in  exchange,  that  is 
not  generally  recognized.  Realization  of  the  truth 
of  this  statement  lies  in  the  application  of  common 
sense  to  figures  showing  the  volume  of  paper 
money  outstanding  in  Europe. 

Dismembered  Austria's  paper  is  estimated  at 
over  200,000,000,000  kronen,  or  crowns,  which 
would  be  more  than  $50,000,000,000  at  pre-war  par, 
and  her  deficit  for  the  fiscal  year  1920-21  is  esti- 
mated at  400,000,000,000  crowns,  although  the 
official  figure  is  165,000,000,000.  Poland,  upon  its 
rebirth  in  1919,  established  a  new  national  cur- 
rency, Polish  marks  of  a  par  value  of  23.8  cents, 
starting  with  3,000,000,000  of  them.  In  two  years 
this  amount  increased  twenty  times.  Before  the 
end  of  1921  the  out-standing  currency  amounted 
to  more  than  130,000,000,000  Polish  marks,  quoted 
at  about  one  three-hundredth  of  a  cent,  or  some- 
what less  than  one  eight-hundredth  of  the  par 
value.    Poland's  1921  budget  estimates  revenues 


56  OUR  ELEVEN  BILLION  DOLLARS 

at  135,000,000,000  Polish  marks  and  gives  expendi- 
tures at  209,000,000,000,  due  largely  to  military 
costs.  If  Poland  could  bring  her  currency  ulti- 
mately to  par  value,  payment  in  the  future  of  her 
present  debt  would  be  at  many  hundred  times  its 
value  in  1922.  In  Russia  at  the  beginning  of  the 
war  the  entire  sum  of  paper  rubles  outstanding 
was  1,630,000,000.  At  the  end  of  1917  they 
amounted  to  27,300,000,000,  at  the  end  of  1919  to 
225,000,000,000,  and  in  December,  1921,  to  1,168,- 
000,000,000.  In  October,  1921,  Bolshevik  currency 
was  reported  to  total  5,750,000,000,000.  With 
prices  in  Moscow  at  that  time  48,600  times  higher 
than  in  1914,  the  monetary  circulation  was  insuffi- 
cient—it was  estimated  that  48,600,000,000,000 
rubles  were  needed,  although  the  estimated 
amount  in  circulation  was  almost  six  trillions ! 

These  figures  show  the  utter  hopelessness  of 
any  expectation  that  Austria,  Poland  and  Russia 
will  attempt  to  restore  their  currencies  to  pre- 
war values.  Even  under  the  most  favorable  cir- 
cumstances they  would  find  it  no  easy  matter  to 
pay  their  debts  in  present  gold  value.  Imagine 
Russia's  trying  to  pay  her  debt  multiplied  by 
1,000.  And  then  there  is  Germany,  but  her  infla- 
tion is  another  story  to  be  considered  in  the  next 
chapter.  Figures  showing  the  increase  in  notes 
issued  by  belligerent  and  neutral  countries  over 
the  period  of  the  war  appear  in  Table  10  (see 
page  62A). 

The  most  depreciated  of  the  world's  currencies 


EUROPE'S  PAPER,  AMERICA'S  GOLD       57 

manage  to  exist  because  nothing  better  has  come 
to  take  their  place.  With  civilized  man  money  is 
a  habit,  even  when  it  is  practically  worthless.  He 
finds  barter  inconvenient  and  expensive.  Pianos 
for  potatoes,  tobacco  in  exchange  for  chickens,  a 
clock  as  payment  for  a  day's  work  have  disad- 
vantages not  even  possessed  by  bundles  of  depre- 
ciated currency  necessary  in  bulk  in  certain  coun- 
tries to  buy  food,  clothing  and  other  needments. 

Reducing  the  nominal  redemption  value  of  the 
most  depreciated  currencies  is  one  of  the  impor- 
tant subjects  for  an  international  conference,  and 
the  problem  should  be  dealt  with  soon.  The  sooner 
it  is  settled  the  sooner  will  trade,  finance  and  in- 
dustry tend  to  become  stabilized.  It  is  said  that 
the  allied  financiers  who  held  a  meeting  in  Paris 
preliminary  to  the  Cannes  conference  recom- 
mended that  an  international  currency  be  adopted 
for  all  central  and  eastern  Europe  to  take  the  place 
of  marks,  crowns,  rubles  and  other  units,  their 
new  gold  value  to  bear  the  relation  of  100  to  the 
American  dollar. 

Establishment  of  new  redemption  values  will 
mean  new  par  values  for  at  least  half  a  dozen 
European  monetary  units.  Those  holders  of  the 
currencies  affected  who  are  losers  will  have  to 
bear  this  partial  repudiation,  the  holders  who 
gain  will  do  the  grinning.  But  introducing  this 
reform  will  not  keep  the  currencies  stabilized  at 
the  new  reduced  par  values.  The  countries  con- 
cerned must  keep  their  budgets  balanced  and  se- 


58  OUR  ELEVEN  BILLION  DOLLARS 

cure  an  equilibrium  between  exports  and  imports 
so  that  national  debits  and  credits  balance  each 
other.  "No  international  currency,  no  attempt 
to  stabilize  the  value  of  gold,  will  be  a  substitute 
for  that  simple,  if  difficult  and  often  painful,  duty 
of  paying  our  way,"  said  Lord  Cullen,  of  the 
British  delegation,  at  the  International  Financial 
Conference,  and  to  these  words  he  added,  as  the 
only  remedy  for  the  exchange  situation,  "hard 
work  and  economy,"  which  constitute  Lord 
Chalmers'  prescription  for  getting  public  finance 
back  on  a  solid  foundation. 

Sound  currency  at  new  or  old  values  and  a 
sound  economic  situation  in  Europe  involve  the 
re-establishment  of  the  gold  standard  in  the  prin- 
cipal European  countries,  that  is,  gold  and  paper 
must  be  interchangeable. 

If  the  gold  standard  needed  to  be  vindicated, 
this  war  and  the  post-war  period  have  together 
provided  the  vindication.  Yet  in  the  face  of  this, 
the  year  1922  opened  on  Ford's  scheme  of  "fliv- 
ver dollars,"  approved  by  Thomas  Edison,  to 
finance  a  part  of  the  Muscle  Shoals  project,  and 
another  fiat  money  revival,  this  by  Senator  Ladd 
and  his  lone  group  crying  in  the  wilderness  of 
North  Dakota  for  "honest  money."  As  if  two 
such  demands  that  gold  be  dethroned  as  the  sound 
money  king  were  not  enough,  there  was  the  spec- 
tacle of  a  learned  economist  chasing  to  the  rain- 
bow 's  end  in  Germany  for  the  pot  of  gold — syn- 
thetic gold,  which  is  to  end  gold  as  a  monetary 


EUROPE'S  PAPER,  AMERICA'S  GOLD       59 

standard  and  strike  America  prostrate  on  a  heap 
of  metal  that  was  worth  $3,656,989,000  on  Janu- 
ary 1,  1922. 

"With  this  accumulation  of  gold  the  United 
States  has  broken  the  world's  gold  records.  It 
is  by  far  the  greatest  sum  of  gold  possessed  to-day 
by  any  one  country,  indeed  the  greatest  mass  of 
the  metal  ever  accumulated  by  a  nation  in  the  his- 
tory of  the  world.  Eepresenting  almost  a  half  of 
the  world's  monetary  gold,  it  has  come  to  us 
chiefly  from  Europe  during  the  past  seven  years, 
enlarging  our  supply  of  monetary  gold,  which  be- 
fore the  war  was  $1,900,000,000.  The  increase  in 
the  country's  gold  since  1912  is  shown  in  the  fol- 
lowing table: 

TABLE  8 

GROWTH  OF  THE  UNITED  STATES'  GOLD  POWER 


Stock  of 

Per 

Year 

Imports  of 

Exports  of 

Net  gold  in 

monetary 

cent 

gold  (a) 

gold  (a) 

Treasury  (a) 

gold  in 

of 

U.  S.  (6) 

1913 

1913 

869,194,025 

$77,762,622 

$258,363,327 

$1,924,000,000 

100 

1914 

66,538,659 

112,038,529 

252,962,971 

1,816,000,000 

94 

1915 

171,568,755 

146,224,148 

247,746,370 

2,312,000,000 

120 

1916 

494,009,301 

90,249,548 

238,093,644 

2,865,000,000 

149 

1917 

977,176,026 

291,921,225 

214,941,127 

3,040,000,000 

158 

1918 

124,413,483 

190,852,224 

248,241,288 

3,081,000,000 

160 

1919 

62,363,733 

116,575,535 

364,575,414 

2,788,000,000 

145 

1920 

150,540,200 

466,592,006 

402,900,726 

2,785,000,000 

148 

1921 

644,480,218 

133,537,902 

415,994,196 

3,657,000,000 

188 

(a)     At  the  end  of  each  fiscal  year,  June  30th. 
(6)     At  the  end  of  the  year. 


Most  of  the  gold  acquired  by  this  country  since 
1914  represents  the  payment  of  private  debts 
contracted  during  the  war  and  since.  The  set- 
tlement of  many  such  obligations  last  year  re- 


60 


OUR  ELEVEN  BILLION  DOLLARS 


suited  in  an  unprecedented  gold  movement,  the 
greatest  the  world  has  ever  seen,  millions  upon 
millions  of  gold  flowing  into  this  country  until 
the  record-breaking  sum  of  $691,267,448  for  1921 
was  reached  on  the  last  day  of  the  year.  During 
the  same  twelve  months  the  United  States  ex- 
ported $23,680,000,  the  smallest  amount  shipped 
from  the  country  in  any  year  since  1898. 

The  imports  and  exports  by  months  for  1921, 
along  with  our  other  imports  and  exports  of  gold 
since  the  war,  appear  in  the  following  table: 

TABLE  9 

UNITED  STATES'  POST-WAR  IMPORTS  AND  EXPORTS  OF  GOLD 


Month 

1919 

1920 

1921 

Imports 

$2,113,217 
3,944,839 

10,481,197 
6,691,795 
1,079,525 

26,134,460 
1,846,495 
2,490,489 
1,471,628 
4,969,595 
2,396,770 

12,914,036 

$12,017,551 
4,473,360 
16,985,222 
48,522,212 
15,687,859 
26,764,983 
19,817,758 
15,377,794 
39,110,008 

116,762,001 
56,889,037 
38,193,669 

$33,633,967 

42,626,913 

March 

87,271,775 
80,662,202 

58,171,386 

June 

July 

August 

October 

November 

December 

43,576,476 
64,247,479 
84,901,554 
66,085,253 
47,106,839 
51,298,626 
31,684,978 

Total 

$76,534,046 

$417,068,273 

$691,267,448 

$94,977,065 

$667,587,405 

Exports 

$3,396,098 

3,110,153 

3,803,229 

1,770,057 

1,956,135 

82,972,840 

54,673,227 

45,189,318 

29,050,466 

44,148,990 

51,857,796 

46,256,939 

$47,816,873 
42,873,376 
47,049,586 
44,622,477 
7,561,583 
5,319,875 
21,872,783 
24,986,182 
17,229,090 
25,931,239 
19,869,757 
17,058,287 

$2,724,980 

1,036,005 

709,668 

383,787 

1,062,521 

773,603 

July 

3,734,929 

671,652 

2,448,741 

7,576,472 

November 

607,437 
1,950,248 

Total 

$368,185,248 

$322,091,208 

$23,680,043 

$291,651,202 

EUROPE'S  PAPER,  AMERICA'S  GOLD       61 

If  this  sensational  gold  movement  were  allowed 
to  continue,  with  governments  and  individuals 
abroad  paying  their  debts  to  the  United  States  in 
gold  and  with  Americans  refusing  to  take  up  for- 
eign investments,  this  country  would  in  time  be 
burdened  with  a  monopoly  of  the  world's  gold 
and  be  faced  with  the  possibility  of  a  universal 
abandonment  of  the  gold  standard.  However,  it 
is  not  conceivable  that  the  debtor  nations  will  in 
the  future  send  us  any  such  extraordinary  quan- 
tities of  gold  as  within  the  last  few  years  or  that 
the  United  States  will  permit  them  to  continue 
gold  shipments  which  disorganize  our  economic 
institutions  as  well  as  their  own. 

It  is  true  that  gold  helps  the  dollar  to  reign 
supreme  throughout  the  world  and  provides  the 
nation's  business  with  security,  but  while  our  sup- 
ply of  gold  has  been  increasing  our  foreign  trade 
has  been  diminishing.  The  inflow  of  the  precious 
yellow  metal  has  been  a  factor  in  preventing  the 
outflow  of  commodities,  and  with  idle  gold  we 
have  idle  workers.  The  person  who  expresses 
only  satisfaction  over  our  gold  billions  forgets 
that  all  the  gold  in  the  world  cannot  create  a  de- 
mand for  commodities  and  services,  that  money 
does  not  create  the  capital  with  which  business  is 
carried  on,  that  gold  and  the  paper  which  repre- 
sent it  are  simply  a  convenience  of  exchange  used 
in  business  transactions  and  in  the  creation  of 
capital. 

A  portion  of  our  new  gold  reserves  constitutes 


62  OUR  ELEVEN  BILLION  DOLLARS 

dead  assets,  and  it  will  remain  so  until  the  world's 
economic  situation  improves  sufficiently  for  us  to 
invest  abroad  this  excess,  which  is  now  piled  up 
accumulating  storage  charges.  Economists  and 
bankers  in  general  consider  that  our  surplus  gold 
will  serve  the  country  best  if  devoted  to  helping 
restore  Europe  to  a  sound  economic  state.  Yet 
if  loaned  for  rehabilitation  of  European  monetary 
systems  and  industries,  it  will  have  to  be  invested 
not  by  the  government  and  the  banks  which  hold 
it  but  by  the  owners,  who  constitute  the  investing 
public. 

Following  consideration  of  the  fact  that  the 
country  is  overstocked  with  gold  beyond  its  cur- 
rency needs  and  that  the  surplus  earns  no  in- 
terest and  serves  no  useful  purpose,  the  United 
States  Section  of  the  Inter- American  High  Com- 
mission, of  which  Herbert  Hoover,  Secretary  of 
Commerce,  is  chairman,  has  made  this  statement : 
' '  The  United  States  feels  it  to  be  to  its  own  inter- 
est that  this  gold  should  be  utilized  in  foreign 
channels,  and  also  that  it  be  redistributed.  From 
an  economic  point  of  view  the  method  of  utiliza- 
tion is  by  the  investment  of  capital  abroad.  The 
method  of  redistribution  should  be  through  loans 
for  reproductive  enterprise  and  by  specific  gold 
loans  to  countries  which  are  in  a  position  to  un- 
dertake the  reorganization  of  their  currencies  on 
a  gold  basis." 

Discussing  our  gold  reserves  and  our  trade 
W.    P.    G.    Harding,    governor    of    the    Federal 


.•TRIES 


1921 


Bell 


-0,099 

91 19 

470 
<2,090 

205 
7.286 
(7,561 

. 


000,000 

000,000 
,000,000 
000,000 
000.000 
000,000 
000,000 
000,000 
,000.000 


1,620 

400 

721 

8,936 

2,132 


.000,000 

oa ii 

,000,000 
000,000 

000,000 


N"c\ 


130,000,000 
420,000,000 

1 1  3,000,000 

740,000,000 
104,000,000 


Cot 


513,000,000 
582,000,000   i 
75,000,000 
■       10,000,000 

10,000,000  ! 

532,000,000 

25,000,000 

4,051,000,000 

55,000,000 


Brii 


260,000.000 
00,000 
301  000,000 
36,00 


000.000 


Gold 


$1,000,000 

l.lXKJ.OOO 

52,000,000 

7,000,000 

2S0,0OO,00O 

8, 000,000 

090,000.000 

260,000,000 

20S.000.000 

101,000,000 

l.").000.000 

5,000,000 

0  (100,000 

81,  ooo.ooo 

764,000,666 


61,000,000 

241,000,OOtl 
39.000,000 

4S7.000.000 
7  ."..000,000 


453,000,000 
24.000,000 
42,000,000 

25,000.000 

5,000,000 1 
540,000,000 
87,000,000 
30.0011  0006 

3, 057,000,000 
57,000,000 


1 12,000,0006 
190,000,000 

1  0.1 )( 10,000 

40,000,000 


Notes 


<-  184  000,000 


$19,100, 

4,500, 

1,180, 

615, 

2,260, 

272 

7,160, 

24.300, 

362, 
4.110 

880, 
36,414 

667 
2,384 
8,936 
2,115 


000,000 
000.000 
000,000 
000,000 
000.000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000,000 
000.000 


129,000,000 
41 1\(  100,000 
101,000,000 
Vt7,000,000 
100,000,000 


578,000.000 

.-,..1.000,0006 

00,000,000 

16,000,000 

10,000  000  i 

:,i  1,000,000 

e 

34,000,0006 

3,637,000,000 
56,000,000 


277,000,0006 
447,000,000 

150,000,000 
39,000,000 


$123,445,000,000 


0  7 


.1  Hungarian  Bank. 


ont.n  RESERVES    IND   PAPER  CI  RRENC1    [BSUES  OF  PRINCIPAL  COUNTRIES 


1914 

1918 

,919 

1021 

Gold 

Cold 

Note, 

Gold 

Note, 

Gold 

Note* 

H-IIik'n 't'  t-omitneji  of  Europe: 

H.'utum    ."    '     ". 

Bulgaria 

8254,000.000 

ublouoiooo 
'iVuijiumju 

853.000.000 

':ji;uii[i\»M 

2;049|000,'000 

$52,000,000 

:.:vll»KMNIII 

[30,000,000 

TI'MMII.l'.WII 

.}!■, HUH! 

^IMHluil.MKI 

ill 

$19,100,000,000 

i  ranee  (*.Y    . 

■   ■■■    ■ 

Italy  <y)      .      . 

I'MrtuituI 

235.000.000 
i_>.-,.oon,nori/ 

'  42loO0iO00 

3i;i000!000 
594,000,000 

'-- ilUJll 

_  W.OOOioOO 

Nmtral  Countries  of  Europe: 

.!.k,:,tak«u><hi 
LflOloOOloOO 

678,000,000 

MMHMlJKhl' 

l.llJlj'.iiiMNllHI 

Canada 

4S,000,000 

ikmx»!ooo 

Total 

S4.fi82.000.000 

$7.-..vj.i.ir»n.nno 

$7,380,000,000 

840,3,10,000,000 

$6,759,000,000 

855,104,000.000 

$8,184,000,000 

«" 

18,4 

14  7 

'" 

[l2u.     Fi|furf.-s  i > >r  l'.l^'l  rorin-cnt  the  finM  Im>Mihiv 
lent  yenrs  exclusive  of  gold  held  nbrotid. 


,  Bank  and  Hun«i 


EUROPE'S  PAPER,  AMERICA'S  GOLD       63 

Reserve  Board,  has  said:  " There  is  a  lot  of  talk 
about  the  $3,500,000,000  in  gold  which  we  have 
in  this  country.  It  is  said  that  America  is  grad- 
ually getting  a  corner  on  the  gold  market,  that 
the  gold  of  the  world  will  soon  be  held  in  this 
country.  The  situation  is  this:  Banking  to  be 
secure  rests  upon  security.  America,  once  a  debtor 
nation,  now  is  a  creditor  nation.  Entirely  apart 
from  the  $11,000,000,000,  which  the  Allies  owe, 
America  is  a  creditor  nation  on  open  account, 
and  the  gold  we  have  received  represents  the 
scrappings  of  the  European  nations.  We  cannot 
continue  to  do  business  forever  on  the  gold  stock 
of  other  nations.  They  have  got  to  increase  their 
gold  supply." 

Europe's  gold  position  as  a  result  of  the  war 
and  post-war  movements  of  the  metal  is  a  long 
and  involved  story,  which  is  best  summarized  in 
Table  10  (see  page  62A),  based  on  a  tabulation 
prepared  by  the  National  City  Bank  of  New  York. 

During  the  great  gold  movement  of  1921,  when 
the  chief  debtor  nations  of  Europe  sent  us  hun- 
dreds of  millions,  they  did  so  without  diminish- 
ing their  gold  reserves.  England  shipped  us  ap- 
proximately $250,000,000  in  1921,  yet  the  central 
gold  reserves  of  the  Bank  of  England  remained 
almost  stationary  throughout  the  year  at  $625,- 
000,000.  France  sent  us  about  $200,000,000,  and 
during  the  same  period  increased  her  gold  re- 
serve in  the  Bank  of  France  from  $692,000,000  to 
$700,000,000.     Although  Sweden  exported  about 


64  OUR  ELEVEN  BILLION  DOLLARS 

$60,000,000  to  us,  her  gold  reserve  lost  only  a  few 
millions. 

How  did  the  debtor  nations  accomplish  this 
seemingly  impossible  feat? 

England  received  about  $40,000,000  of  gold 
from  India  and  over  $150,000,000  from  South 
Africa.  The  chief  source  of  the  continent's  gold 
was  Russia.  The  countries  receiving  gold  from 
the  Bolshevists  did  not  pass  it  directly  on  to  us, 
since  the  United  States  government  had  taken  the 
stand  that  it  would  not  admit  Russian  gold  be- 
cause the  Moscow  government  had  no  title  to  it. 
Having  no  such  scruples,  certain  European  gov- 
ernments put  the  Russian  gold  as  it  came  to  them 
into  their  treasuries  and  sent  us  an  equivalent 
amount  from  their  own  reserves  or  reminted  the 
czarist-soviet  gold  and  shipped  it  to  America  as, 
for  example,  "made  in  Sweden." 

While  managing  to  preserve  their  gold  reserves 
intact  through  1921,  Great  Britain,  France,  Italy, 
Switzerland,  Holland  and  the  Scandinavian  coun- 
tries succeeded  during  the  year  in  reducing  their 
total  of  paper  currency  about  $2,000,000,000  at  its 
face  value.  But  this  decrease  was  offset  by  the 
large  increases  in  Germany,  Austria,  Poland, 
Hungary  and  Rumania.  Table  10  (see  page  62 A) 
shows  that  the  face  or  par  value  of  the  outstanding 
paper  of  thirty-six  principal  countries  of  the 
world  amounted  toward  the  end  of  1921  to 
$123,000,000,000  as  against  $82,000,000,000  in  1920, 
$55,000,000,000  in  1919,  $40,000,000,000  in  1918 


EUROPE'S  PAPER,  AMERICA'S  GOLD       65 

and  $7,500,000,000  in  1914.  Due  to  the  great  in- 
crease in  paper  last  year,  exceeding  many  times 
the  billion  dollar  increase  in  the  quantity  of  visi- 
ble gold  reserve  for  the  same  period,  the  ratio  of 
total  gold  to  total  paper  stood  at  the  end  of  1921 
at  a  lower  point  than  in  any  previous  year — less 
than  7  per  cent,  as  compared  with  14.7  per  cent 
in  1919, 18.4  per  cent  after  the  Armistice  and  63.3 
per  cent  at  the  beginning  of  the  war. 

And  the  greatest  inflation  crimes  were  com- 
mitted by  Europe,  with  her  $115,000,000,000  and 
more  of  paper  and  less  than  $3,500,000,000  of 
gold. 


VI 

FOREIGN  TRADE  AND  FOREIGN 
EXCHANGE 

On  a  private  business  basis,  without  taking 
into  account  a  dollar  of  the  $11,000,000,000  and 
more  of  governmental  debts,  Europe  owes  the 
United  States  a  sum  exceeding  her  total  gold  re- 
serves. This  commercial  debt  is  due  largely  to 
the  balance  of  trade  in  our  favor,  and  the  credit 
side  of  trade  with  the  countries  of  Europe  will 
be  ours  for  an  indefinite  period.  The  favor- 
able balances  for  our  world  commerce  from  pre- 
war peace  to  post-war  peace  are  as  follows: 

TABLE  11 

RISE  AND  FALL  IN  ANNUAL  FOREIGN  TRADE  BALANCE 
OF  THE  UNITED  STATES  BETWEEN  1912  AND  1921 


Year 

Exports 

Imports 

Excess  of  exports 

1912 

$2,399,216,000 
2,484,018,000 
2,113,625,000 
3,554,670,000 
5,482,641,000 
6,233,514,000 
6,149,085,000 
7,920,425,000 
8,228,016,000 
4,485,122,000 

$1,818,217,000 
1,792,596,000 
1,798,277,000 
1,778,598,000 
2,391,635,000 
2,952,467,000 
3,031,213,000 
3,904,364,000 
5,278,481,000 
2,509,025,000 

$580,999,000 

1913 

691,422,000 

1914 

324,348,000 

1915 

1,776,072,000 

1916 

3,091,006,000 

1917 

3,281,047,000 

1918 

3,117,872,000 

1919 

1920 

4,016,061,000 
2,949,535,000 

1921 

1,976,097,000 

■      - 

Discussing  the  trade  outlook  between  this  coun- 
try and  Europe,  Secretary  of  Commerce  Hoover 


66 


FOREIGN  TRADE,  FOREIGN  EXCHANGE        67 

said  at  the  beginning  of  the  year :  "One  great  dif- 
ficulty is  the  fact  that  Europe  is  not  able  to  sell 
us  any  great  quantity  of  goods  and  must,  there- 
fore, be  carried  to  a  large  extent  on  credit.  For 
example,  during  the  year  just  closed  we  sold  to 
Europe  approximately  $2,300,000,000  worth  of 
goods  and  bought  approximately  $760,000,000 
worth.  Either  Europe  must  find  a  way  of  in- 
creasing the  sale  of  goods  directly  or  indirectly 
to  this  country  or  she  must  continue  to  be  carried 
to  a  large  extent  on  American  credit,  if  her  pur- 
chases of  American  products  are  to  remain  up  to 
the  present  standard." 

Table  12  (see  page  68)  gives  an  analysis,  by  the 
Department  of  Commerce,  of  the  United  States' 
foreign  trade  for  1920  and  1921,  classified  by 
great  groups  according  to  the  use  or  degree  of 
manufacture. 

The  extraordinary  growth  and  sharp  decline  in 
our  exports  and  imports  shown  in  Tables  11 
and  12  is  a  matter  that  comes  home  to  every 
American.  In  these  figures  lie  several  hard 
facts.  The  one  uppermost  in  the  American 
mind  is  the  difference  between  prosperity  and 
"bad  times,"  represented  by  the  $3,343,000,000 
drop  from  1920  to  1921  in  our  exports  and  by  the 
$424,000,000  decline  in  exports  for  December, 
1921,  as  compared  with  December,  1920.  Al- 
though partly  due  to  the  fall  in  prices,  the  figures 
showing  this  break  in  exports  should  prove  to  all 
American  business  men,  farmers   and  workers 


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FOREIGN  TRADE,  FOREIGN  EXCHANGE        69 

that  it  is  an  established  fact  that  the  United 
States,  which  increased  its  means  of  production, 
both  industrial  and  agricultural,  to  abnormal  pro- 
portions during  the  war,  is  coming  back  to  a  stage 
of  production  approaching  a  level  nearer  that  of 
1913  than  the  peak  years  of  the  war.  The  ex- 
porting producer  has  to  face  this  hard  fact  and  act 
accordingly,  even  though  Europe  and  other  parts 
of  the  world  are  still  suffering  from  an  under- 
consumption that  matches  our  overproduction. 

Reviewing  our  foreign  trade  for  the  fiscal  year 
1920-21  the  director  of  the  Bureau  of  Foreign 
Trade  and  Commerce,  Julius  Klein,  said:  "The 
decrease  of  more  than  $3,000,000,000  in  the  value 
of  American  foreign  trade  in  the  last  fiscal  year, 
as  compared  with  the  immediately  preceding 
year,  was  clearly  the  effect  of  the  world-wide 
trade  depression  appearing  as  an  aftermath  of 
the  war.  To  a  great  extent  lower  prices,  rather 
than  diminished  quantities,  are  responsible  for 
the  decrease.  In  fact,  a  compilation  of  exported 
commodities,  reduced  so  far  as  possible  to  a 
weight  basis,  shows  weight  increases  of  34  per 
cent  for  the  groups  of  raw  materials  and  of  37 
per  cent  for  foodstuffs  in  1921  over  1920,  with  a 
decrease  of  four  per  cent  for  such  partly  or 
wholly  manufactured  articles  as  can  be  shown  in 
weight.  The  final  totals,  including  articles  form- 
ing 69  per  cent  of  the  value  of  domestic  exports 
in  1921,  indicate  a  decrease  in  value  of  19  per 
cent  but  an  increase  in  weight  of  23  per  cent  in 


70  OUR  ELEVEN  BILLION  DOLLARS 

the  exports  of  1920-21  as  compared  with  the  pre- 
ceding year,  1919-20. 

"Aside  from  the  effect  of  lower  prices,  how- 
ever, other  causes  contributed  to  the  lower  for- 
eign trade  totals.  It  is  evident  that  the  United 
States  no  longer  enjoys  the  advantage,  possessed 
during  and  after  the  war,  of  being  practically 
the  only  country  able  to  supply  the  larger  needs 
of  the  world.  The  European  countries  are  again 
raising  crops  on  the  former  battlefields  and  no 
longer  depend  on  this  country  for  the  greater  part 
of  their  food  supplies,  as  was  the  case  during  and 
immediately  after  the  close  of  the  war.  Like- 
wise, they  have  satisfied  their  most  pressing  needs 
for  our  raw  materials,  which  were  required  in 
unprecedented  quantities  in  1919  and  1920  for  the 
re-establishment  of  their  manufacturing  indus- 
tries. In  the  world  markets  for  manufactured 
goods,  as  well  as  raw  and  partly  manufactured 
materials,  we  no  longer  have  the  field  to  our- 
selves, but  must  compete  in  prices  and  terms  with 
other  countries. 

"The  foreign  exchange  situation,  with  the  dol- 
lar at  a  premium  over  the  currencies  of  most 
other  countries,  had  a  depressing  effect  on  our 
exports  in  the  last  year.  With  exchange  rates  of 
foreign  currencies  depreciated  to  a  point  which 
made  our  prices  in  dollars  prohibitive,  with  de- 
clining imports,  with  the  impossibility  of  settling 
in  gold  the  balances  already  due  us,  with  the  dif- 
ficulty of  arranging  further  credit  facilities,  with 


FOREIGN  TRADE,  FOREIGN  EXCHANGE         71 

cancellation  of  orders,  with  rejection  of  goods  al- 
ready shipped  and  the  dishonoring  of  drafts,  it 
was  impossible  for  exports  to  continue  at  the  rate 
of  $500,000,000  to  $600,000,000  per  month,  to 
which  they  had  grown  during  and  directly  after 
the  war.  In  fact,  an  unavoidable  drop  in  our 
exports  was  predicted  long  before  it  took  place. 
Beginning  with  the  early  months  of  1921  the 
monthly  totals  began  to  decrease,  and  during  the 
last  four  months  of  the  fiscal  year  the  average 
was  $350,000,000  per  month.  Even  at  this  rate, 
if  continued,  our  exports  would  average  75  per 
cent  above  the  pre-war  totals." 

But  the  figures  of  the  Federal  Reserve  Board 
show  that  the  volume  of  at  least  part  of  the  export 
trade  of  the  United  States  for  1921,  calculated 
on  a  1913  basis,  was  noticeably  less  than  a  75 
per  cent  average.  A  general  idea  of  the  actual 
trend  in  our  foreign  trade  may  be  had  from  Table 
13  (see  page  72),  which  combines  the  Federal  Re- 
serve Board's  index  figures  for  the  value  and 
volume  of  selected  exported  and  imported  com- 
modities, all  on  a  1913  basis,  with  index  figures 
showing  the  annual  value,  in  terms  of  the  fluc- 
tuating dollar,  of  exports  and  imports  from  1913 
to  1921,  along  with  the  index  numbers  of  the 
Bureau  of  Labor  Statistics  for  wholesale  prices 
of  commodities  in  the  United  States. 

The  actual  movements  of  our  post-war  foreign 
trade  are  traced  month  by  month  through  the 
years  1919,  1920  and  1921  in  Tables  14  and  15 


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FOREIGN  TRADE,  FOREIGN  EXCHANGE    73 

(see  pages  74  and  75),  prepared  by  L.  B.  Mann, 
of  the  Division  of  Analysis  and  Research  of  the 
Federal  Reserve  Board.  To  throw  light  on  how 
much  of  the  increases  in  the  value  of  American 
foreign  trade  has  been  due  to  increases  in  prices 
and  how  much  reflected  the  increased  volume  of 
shipments  and  to  determine  the  relative  impor- 
tance of  changes  of  prices  and  changes  in  vol- 
ume of  shipments  upon  the  value  of  American 
exports  and  imports,  monthly  exports  of  29  com- 
modities and  monthly  imports  of  27  commodities 
were  studied.  The  tables  show  these  two  major 
groups  of  commodities  divided  into  three  minor 
groups — raw  materials,  producers '  goods  and  con- 
sumers'  goods.  For  purposes  of  combination 
the  volume  of  shipments  of  each  commodity  was 
translated  into  dollars  by  multiplying  by  its  aver- 
age wholesale  price  in  the  United  States  in  1913, 
the  combined  values  thus  obtained  being  con- 
verted into  index  numbers  by  making  the  average 
monthly  value  in  1913  equal  to  100.  The  value 
of  exports  or  imports  of  each  commodity,  as 
shown  by  the  Department  of  Commerce  figures, 
are  represented  in  the  tables  by  a  comparable  set 
of  index  numbers,  the  values  of  the  commodities 
in  each  group  having  been  added  and  their  aver- 
age monthly  values  in  1913  taken  as  a  base. 

Referring  to  the  index  numbers  of  Table  14 
(page  74),  Mr.  Mann  says:  "The  volume  of  mer- 
chandise exports  of  these  selected  commodities 
was  slightly  higher  in  January,  1919,  than  in  the 


74 


OUR  ELEVEN  BILLION  DOLLARS 


TABLE  14 

INDEX  NUMBERS  OF  VALUE  AND  VOLUME  OF  EXPORTS  DURING 

1919,  1920  AND  1921,  BASED  ON  AVERAGE 

MONTHLY  FIGURES  FOR  1913 


Year 
and 

Raw 

materials 
(12  com- 
modities) 

Producers' 
goods 
(10  com- 
modities) 

Consumers' 
goods 
(7  com- 
modities) 

Total 
exports 
(29  com- 
modities) 

Value 

Volume 

Value 

Volume 

Value 

Volume 

Value 

Volume 

1919 
January .  . 
February  . 
March. . . . 

May 

July 

August .  .  . 
September 
October. . . 
November 
December. 

219.6 
147.8 
152.2 
162.5 
167.0 
251.1 
185.2 
212.6 
174.7 
186.4 
312.0 
289.8 

98.2 

68.3 

67.3 

76.0 

78.9 

114.8 

84.0 

94.9 

82.1 

82.1 

116.2 

104.6 

382.4 
322.9 
350.7 
382.  r 
311.0 
520.7 
310.7 
349.5 
368.6 
349.7 
320.7 
258.5 

159.0 
125.9 
139.3 
166.9 
137.7 
247.1 
147.9 
168.8 
166.9 
148.1 
135.7 
113.9 

405.0 
405.7 
481.3 
606.9 
435.0 
761.6 
415.8 
393.5 
340.8 
358.3 
369.0 
350.8 

186.4 
175.2 
202.3 
264.9 
192.9 
315.1 
172.7 
161.6 
142.4 
150.6 
153.5 
143.1 

268.1 
211.0 
230.7 
264.6 
229.5 
369.8 
239.2 
258.1 
222.2 
232.4 
323.6 
298.7 

124.7 
99.0 
106.1 
129.3 
111.4 
174.7 
110.9 
117.5 
104.1 
104.4 
126.9 
114.6 

Average . 

205.1 

88.9 

352.6 

154.7 

453.5 

188.5 

262.3 

118.6 

1920 
January .  . 
February  . 
March. . . . 
April 

July   

August .  .  . 
September 
October. . . 
November 
December . 

314.7 
232.6 
304.0 
228.7 
208.3 
185.1 
239.2 
235.3 
257.6 
331.2 
269.9 
260.7 

108.7 

81.9 

106.0 

79.5 

73.5 

64.9 

78.1 

78.7 

82.5 

118.7 

111.1 

122.4 

322.1 
305.6 
357.4 
359.3 
352.7 
315.3 
380.0 
334.9 
300.4 
391.4 
306.0 
458.5 

134.9 
122.4 
148.8 
147.5 
150.4 
126.4 
164.4 
135.4 
119.7 
152.2 
121.8 
186.0 

304.3 
342.1 
477.5 
444.3 
509.1 
393.8 
354.8 
253.7 
259.7 
327.2 
309.3 
311.8 

116.2 
136.8 
186.0 
169.1 
205.5 
151.5 
142.3 
94.7 
94.0 
124.4 
111.6 
123.3 

313.4 

259.4 
341.2 
280.2 
277.0 
235.3 
272.8 
247.1 
261.6 
335.4 
280.4 
287.0 

112.9 

98.7 

128.9 

107.1 

111.9 

91.1 

101.3 

87.7 

88.6 

123.1 

112.2 

128.4 

Average . 

255.6 

92.2 

348.6 

142.5 

357.3 

138.0 

282.6 

107.7 

1921 
January.  . 
February  . 
March. . . . 

June 

July 

August .  .  . 
September 
October . . . 
November 

199.8 
158.9 
132.3 
117.4 
147.4 
151.8 
153.6 
195.4 
151.9 
183.3 
137.3 

105.2 
91.0 
78.2 
76.6 
97.7 
107.9 
111.6 
142.7 
115.7 
121.7 
95.1 

466.1 
325.6 
244.2 
212.1 
157.2 
135.0 
118.6 
118.2 
129.3 
120.7 
126.6 

187.9 

141.0 

104.4 

102.7 

81.8 

74.4 

68.3 

68.1 

79.1 

83.5 

83.7 

277.9 
219.3 
205.5 
193.2 
169.9 
199.7 
195.7 
227.9 
199.4 
153.3 
146.3 

126.0 
116.4 
122.4 
122.5 
112.8 
135.1 
131.8 
164.1 
147.5 
119.2 
108.6 

236.8 
184.2 
155.5 
139.6 
152.5 
159.4 
158.7 
195.1 
159.0 
172.4 
138.1 

117.6 

101.6 

91.1 

89.9 

100.0 

111.3 

112.5 

140.9 

119.9 

117.6 

97.3 

Average . 

153.8 

103.1 

183.2 

95.8 

194.1 

126.1 

156.7 

107.9 

Raw  materials:  Lumber,  wheat,  corn,  oats,  barley,  leaf  tobacco,  cotton, 
refined  copper,  anthracite,  bituminous  coal,  pig  iron,  crude  oil. 

Producers'  goods:  Sole  leather,  upper  leather,  steel  rails,  structural  steel, 
steel  plates,  copper  wire,  acetate  of  lime,  cottonseed  oil,  fuel  oil,  gasoline. 

Consumers'  goods:  Wheat  flour,  cotton  cloth,  boots  and  shoes,  hams  and 
shoulders,  lard,  illuminaing  oil,  refined  sugar. 


FOREIGN  TRADE,  FOREIGN  EXCHANGE        75 


TABLE   15 

INDEX  NUMBERS  OF  VALUE  AND  VOLUME  OF  IMPORTS  DURING 

1919,  1920  AND  1921,  BASED  ON  AVERAGE 

MONTHLY  FIGURES  FOR  1913 


Year 
and 

Raw 

materials 
(10  com- 
modities) 

Producers' 
goods 
(12  com- 
modities) 

Consumers' 
goods 
(5  com- 
modities) 

Total 
imports 
(27  com- 
modities) 

Value 

Volume 

Value 

Volume 

Value 

Volume 

Value 

Volume 

1919 
January  .  . 
February  . 
March. . . . 

April 

May 

June 

July 

August .  .  . 
September 
October. . . 
November 
December. 

144.1 
165.6 
182.8 
228.2 
282.0 
292.5 
311.8 
323.8 
487.7 
390.3 
426.2 
340.6 

88.5 
94.9 
109.2 
125.9 
161.4 
171.4 
171.7 
169.9 
245.3 
196.8 
196.1 
158.9 

207.4 
258.9 
269.4 
305.2 
353.0 
243.1 
281.6 
167.1 
281.9 
285.9 
282.5 
236.4 

143.3 
180.2 
223.0 
237.7 
242.8 
167.2 
209.1 
113.8 
189.2 
201.9 
213.9 
194.2 

120.0 
121.6 
226.5 
175.8 
225.2 
197.3 
320.0 
272.6 
326.9 
254.3 
265.0 
244.5 

95.5 
97.9 
165.1 
137.1 
178.1 
144.3 
204.4 
153.0 
169.8 
137.0 
143.5 
144.4 

162.6 
191.3 
222.2 
246.5 
297.3 
257.1 
302.4 
257.6 
383.6 
327.5 
344.6 
285.2 

109.1 
125.6 
158.6 
167.4 
193.0 
165.4 
190.3 
147.3 
213.1 
188.8 
193.8 
169.0 

Average . 

298.0 

157.5 

264.4 

193.0 

229.1 

147.5 

273.2 

168.4 

1920 
January .  . 
February  . 
March. . .  . 

April 

May 

July 

August .  .  . 
September 
October. . . 
November 
December. 

452.2 
411.4 
431.9 
375.2 
305.9 
352.6 
275.8 
259.8 
192.8 
151.6 
140.8 
119.5 

206.1 

173.2 

192.7 

173.9 

127.5 

157.3 

121.0 

122.3 

101.3 

89.1 

86.3 

79.4 

395.6 
498.5 
548.1 
482.2 
501.0 
789.6 
819.7 
750.1 
424.4 
298.2 
335.8 
262.6 

244.8 
289.4 
338.8 
262.5 
227.2 
257.2 
256.8 
256.3 
165.3 
131.5 
166.4 
133.0 

272.3 
225.3 
302.1 
337.6 
181.5 
252.4 
288.0 
248.5 
170.1 
167.5 
128.7 
95.1 

152.9 
126.9 
173.0 
193.7 
108.1 
149.2 
168.3 
160.0 
120.5 
120.4 
102.4 
91.6 

398.7 
408.8 
450.2 
407.1 
353.8 
492.6 
475.2 
435.4 
272.6 
207.7 
209.2 
166.9 

211.1 
206.9 
241.2 
208.6 
159.6 
191.4 
176.9 
176.0 
127.1 
109.2 
117.3 
100.4 

Average . 

289.1 

135.8 

508.8 

227.4 

224.4 

166.7 

356.5 

168.8 

1921 
January .  . 
February  . 
March. . .  . 
April 

June 

July 

August .  .  . 
September 
October. . . 
November 

99.2 
144.1 
154.6 
179.7 
137.1 
132.6 
135.3 
160.3 
134.1 
120.5 
147.2 

74.5 
118.2 
160.7 
153.4 
98.7 
94.5 
99.3 
116.7 
102.8 
96.2 
115.1 

181.6 
201.7 
249.7 
247.7 
172.2 
137.3 
115.7 
146.3 
103.7 
117.5 
131.8 

130.8 
143.5 
177.5 
177.7 
150.2 
152.5 
126.5 
165.0 
137.8 
173.5 
199.5 

112.3 
117.6 
148.9 
158.9 
140.3 
111.7 
112.3 
117.3 
97.6 
115.0 
149.8 

123.9 
135.5 
178.9 
185.1 
162.1 
130.4 
121.4 
129.8 
99.4 
116.5 
149.2 

131.5 
160.1 
188.0 
200.5 
150.4 
130.4 
124.0 
147.3 
116.4 
118.4 
142.1 

102.6 
130.0 
169.7 
167.2 
127.3 
120.9 
112.6 
136.0 
114.6 
126.9 
150.6 

Average. 

137.0 

113.6 

156.7 

162.8 

129.2 

141.4 

1  is    1 

135.6 

Raw  materials:  Cotton,  refined  copper,  hides  and  skins,  lumber,  silk,  tin, 
flax  seed,  leaf  tobacco,  pulp  wood,  wool. 

Producers'  goods:  Extract  of  quebracho,  glycerine,  nitrate  of  soda,  mamlla 
hemp,  jute,  burlap,  sisal  grass,  sulphate  of  ammonia,  india  rubber,  cane  sugar, 
news  print,  wood  pulp. 

Consumers'  goods:    Cocoa,  coffee,  tea,  bananas,  olive  oil. 


76  OUR  ELEVEN  BILLION  DOLLARS 

average  month  of  1913,  while  the  total  value  of 
such  exports  was  over  two  and  one-half  times  as 
great.  This  divergence  between  the  relatives  of 
volume  and  value  of  exported  merchandise  tended 
to  become  greater  until  September,  1920.  From 
October,  1920,  to  September,  1921,  however,  the 
value  and  volume  series  showed  a  marked  ten- 
dency to  return  to  their  1913  relationship.  Eaw 
materials  were  first  affected  by  this  curtailment 
in  relative  values,  but  consumers'  goods  and  pro- 
ducers '  goods  very  soon  followed  the  same  course. 
In  October,  1921,  the  value  of  raw  materials  once 
more  showed  a  relative  increase  as  compared  with 
the  volume,  while  consumers'  goods  and  produc- 
ers' goods  registered  a  similar  movement  in  No- 
vember. ' ' 

In  regard  to  the  imports  indexed  in  Table  15 
(page  75),  the  following  points  are  made:  "The 
volume  of  the  selected  group  of  imports  in  Janu- 
ary, 1919,  was  only  slightly  larger  than  in  the 
average  month  of  1913,  while  their  value  was  over 
50  per  cent  greater.  This  difference  between 
relative  volume  and  value  of  imports  for  the 
group  as  a  whole  tended  to  increase  until  July, 
1920,  but  after  that  month  declined  rapidly,  until 
the  volume  on  a  1913  base  in  October,  1921,  was 
greater  than  the  value.  This  decline  started  first 
in  the  consumers'  group  in  October,  1919,  was 
registered  by  raw  materials  commencing  with 
June,  1920,  and  by  producers '  goods  commencing 
with    August,    1920.     It    was    finally    entirely 


FOREIGN  TRADE,  FOREIGN  EXCHANGE    77 

checked  in  November,  1921,  but  average  prices  of 
consumers '  goods  had  already  commenced  to  show 
a  reverse  movement  in  July,  1921. 

"The  value  of  both  exports  and  imports  in- 
creased more  rapidly  than  their  volume  during 
1919  and  the  first  half  of  1920.  Since  the  summer 
of  1920,  however,  these  values  have  shrunk  very 
rapidly  and  in  recent  months  values  of  selected 
imports  are  relatively  lower  than  in  1913,  while 
values  of  a  selected  group  of  exports  are  only 
about  40  per  cent  higher  than  they  would  have 
been  at  1913  prices." 

The  excess  in  the  volume  of  trade  for  the  year 
1921  over  that  for  1913  causes  0.  K.  Davis,  sec- 
retary of  the  Foreign  Trade  Council,  to  ask,  in 
the  New  York  World:  "Why  do  we  Americans 
so  sedulously  indulge  in  bewailment?  Why  per- 
sist in  seeing  the  dark  as  well  as  the  wrong  side 
of  these  matters? 

"In  1913  we  were  selling  substantially  all  that 
we  produced.  The  war  came  on,  with  its  amaz- 
ing expansion  of  our  productive  capacity  and  our 
curtailment  of  consumption.  In  every  industry 
there  is  an  element,  roughly  estimated,  as  the  last 
20  per  cent,  the  sale  of  which  is  essential  to  the 
prosperity  of  the  whole  operation.  This  applies 
equally  to  the  steel  maker,  the  farmer  and  to  any 
person  or  concern  engaged  in  industry.  Costs 
are  met,  still  roughly  speaking,  with  the  80  per 
cent,  and  profits  accrue  from  the  20  per  cent. 

"A  farmer  produces   1,000  bushels  of  wheat 


78  OUR  ELEVEN  BILLION  DOLLARS 

and  sells  only  800  bushels.  If  he  cannot  sell  the 
remaining  20  per  cent  he  will  have  a  hard  year — 
his  profits  will  be  cut  off  entirely.  And  precisely 
the  same  is  true  of  the  industries. 

"Before  the  war  we  had  developed  an  export 
trade  of  about  $1,000,000,000  in  finished  manufac- 
tures. Then  came  the  war,  with  the  enormous 
stimulation  of  production  capacity  and  corre- 
sponding vital  diversion  of  labor  from  agriculture 
to  industry.  We  came  out  from  the  war  with  a 
capacity  for  production  for  export  far  beyond 
what  our  normal  increase  would  have  been.  We 
accomplished  in  a  jump,  under  the  forced  draught 
of  the  war,  such  an  industrial  development  as 
would  normally  have  been  accomplished  only  over 
a  period  of  two  or  three  decades. 

"At  the  same  time,  we  curtailed  consumption  to 
a  point  where  there  was  an  enormous  expansion 
of  our  customary  increment  of  wealth.  In  other 
words,  we  saved  more  than  we  ordinarily  would 
have  saved,  and  this  extraordinary  saving  under 
the  inspired  impetus  of  the  war  bulks  so  large  in 
the  aggregate  that  we  came  from  the  war  very 
greatly  a  creditor  nation  instead  of  the  substantial 
debtor  nation  we  were  when  we  entered  the  war. 
Thus,  we  achieved  in  financial  status  in  a  single 
jump  the  same  thing  we  achieved  in  industrial 
status,  excepting  that  it  would  have  required 
twice  as  long  to  build  up  such  a  credit  as  it  would 
have  required  to  build  up  such  an  industrial  de- 
velopment.   As  a  people  we  will  have  to  learn 


FOREIGN  TRADE,  FOREIGN  EXCHANGE    79 

what  the  last  20  per  cent  of  industrial  production 
means  to  the  economic  health  of  the  country." 

America  is  learning,  at  great  cost,  that  the  mar- 
gin of  surplus  production  over  domestic  demand 
can  break  the  domestic  market  and  with  it  the 
domestic  demand.  Producers  in  the  United 
States — industrial  and  agricultural  leaders  and 
workers  alike — are  beginning  to  realize  that  the 
country's  production  must  be  readjusted  on  a 
basis  that  provides  for  a  surplus  of  production 
to  meet  the  actual  demand  of  foreign  markets,  a 
demand  which  will  increase  as  Europe  revives 
but  which  can  never  reach  the  high  level  of  the 
war  until  another  great  war  is  waged  abroad — 
after  the  debts  of  this  war  are  settled — or  the 
world's  population  has  greatly  increased. 

European  countries  are  still  far  from  the  point 
where  they  can  increase  their  production  and  ex- 
ports so  that  an  equilibrium  against  our  con- 
stantly increasing  creditor  position  can  be 
reached.  Before  the  war  we  paid  Europe  $250,- 
000,000  every  year  for  capital  invested  in  this 
country;  now  her  annual  interest  debt  to  us 
amounts  to  about  $800,000,000.  The  remedy  for 
the  situation  is  the  reciprocal  increase  of  exports 
and  of  imports,  and  a  field  of  foreign  trade  new 
to  us — foreign  investment.  But  first  Europe 
must  produce  the  goods.  How  she  is  failing  to  do 
so  is  represented  in  Table  16  (see  page  78A). 

With  the  problems  of  international  trade,  infla- 
tion, gold  reserves  and  budgetary  equilibrium,  the 


80  OUR  ELEVEN  BILLION  DOLLARS 

problem  of  exchange  is  to  be  considered.  The 
effect,  not  the  cause  of  the  world's  economic 
troubles,  exchange  has  fluctuated  in  the  last  few 
years  in  an  amazing  manner,  rising  or  falling 
with  every  financial  breeze  or  political  sneeze. 
'  '  Stabilize  exchange ' '  is  the  cry  that  has  gone  up 
throughout  the  world,  as  if  stabilization  were  the 
cure-all  for  the  world's  post-war  ills.  But  under 
the  present  economic  and  political  conditions  in 
Europe  it  would  be  just  as  impossible  to  stabilize 
exchange  as  to  stabilize  Lloyd  George. 

Since  the  removal  of  the  artificial  supports  pro- 
vided by  the  United  States  for  allied  exchange 
during  the  war,  numerous  artificial  methods  have 
been  suggested  for  the  stabilization  of  exchange, 
and  a  few  tried,  unsuccessfully,  of  course,  since 
the  credit  position  of  Europe  is  to  be  strength- 
ened and  her  buying  power  increased  only  in  the 
natural  way — hard  work  and  strict  economy,  in- 
creased production  and  normal  consumption.  So 
great  is  the  gap  between  the  dollar  and  most  Euro- 
pean currencies  to-day  that  not  even  all  our  gold 
could  bridge  it  without  Europe's  reform.  Sta- 
bilization of  exchanges  will  never  be  brought 
about  so  long  as  Europe's  economic  and  political 
instability  continues. 

The  disordered  state  of  European  exchanges  is 
shown  in  Table  17  (see  page  81),  which  gives  the 
high  and  low  European  exchange  rates  for  the 
year  1921  and  their  averages  for  January,  1922, 
compared  with  parity. 


UE8 


Df  imports 
ports,  — 
3f  exports 
iports,    + 


Belliger 
Belg  0 
Buhj2 
Finli2 


Frai 


Gen  9 
Gre<  6 
Italj8 
Port  1 
Unit  9 


Neutral 
Dem 
Boll 

Spai 
S\v 

5w 


tcu'j 


Countri 
An 
Bras 
Ja 
Uni 


pa4 


British 
A  us 
far. 
In 
N 


dii' 


(o) 
(b) 
(e) 
(d) 

■ 
if) 

>u 

{h) 
(t) 
0> 
(k) 
U> 
m) 
(n) 

(>) 

. 
(r) 


000,000 

000,000 

000,000 

000,000a 

000,0006 

000,000 

000,000 

000,000 

000,000 

000,000 


,-C(l 


It  ."> 


3,000,000 
4,000,000 

,000,000 
,000,000 
000,000 


,000,000  c 
5,000,000 
000,000 
,000,000 


,000,000 
,000,000 
,000,000rf 
000,000 
.Soutjl.000,000 


Imports 


7,728,937,000  e 

'2;626,8bi,666/ 
23,548,000,000 


6,523,  650,000/i 
986,380,000 


334,764,000  i 
2,425,410,000  j 

744.698.000A- 
832,311,000/ 


46,601,000m 
l.li'U.  224,000/1 
2,509,025,403 


43,657,000m 
674,96  l,000p 


29,442,000  v 
28,4 11, 000  r 


1921 


Exports 


5,447, 104,000  e 

'  1 1993,772,666/ 
21,553,000,000 

'2;G77,16i',006a 
'703,130,666 


844,778,000  i 

1,239,871,000.; 

356,677,000A- 

681,376,000/ 


36,256,000m 
975,920,000/1 
4,485,122,690 


33,225,000<> 
629,949,00Op 


31,181,0007 
11, 758,000  t 


Excess  of  imports 
over  exports,  — 
Excess  of  exports 
over  imports,   + 


— 2,281,833,000e 

'^633,029,606/ 
—1,995,000,000 
— 13,000,000,0001/ 

—3,846,489,000/1 

—277,250,606 


+510,014,000/ 
-1,185,539,000; 
— 388,02 1,000  k 
—150,935,000  / 


—10,345,000m 
—318,304,000/1 
+  1,976,097,293 


— 10,432,000u 
— 15,012,000p 


+  l,739,000y 
-1 6,653,000  r 


:  PRINCIPAL  CIM'NTRII  S 


Unit 

19.3 

1919 

i«i 

Cunt™ 

m^* 

Exports 

ExeesToTeiporM 

[mporta 

_ 

Excess  of  import* 
Excess  of  exports 

^ 

Exports 

Excess  of  exporU 

B'"ffi™,'uCO°n"ie*  °'  E"°Pe: 

Franc 

Franc 

Krone 
Gulden 

I. . .' 

TSE 

■l."-;'i. ,; .1 

1    H3-.ri.HMJ. 1 

Lm|ooo!ooo 

—134.000.000 

"jUJUMMMM. 

+23.000.000 
— 25,OUU,UO0 

+09l!o00;000 

--:(, 

■  aa  i!ooo! 

I.Ih-TJMMI.kmi 

■       ■ 

79f>|l.H«l!lHXI 

^l-'UXX.M."*) 

—669,000,000 

— 23SiO00!0O0 

+  4,018;UOO!000 

+48,000,000 
+732,00o|000d 

■i  22.lKNi.IMU 

7,728.937.000, 

5,„7.,«.00O, 

,   ,s]  S(((MK) 

PiS 

Franco            

Germany 

Countries  outside  Europe 
United  States 

N.Vzf-nland.'.;: 

2,026,801,000/ 

1,993,773,000/ 
B44,778,000i 

|    J1...S7_|.,I,MI; 

esilsTalooo, 

36,25fl,b66n 
975,920,000i 

33,236,0001 

629.949.00Op 

—038,029,000/ 

— 1  3.000,000.000  b 

980,380,666 
■,.i  -  4,000 

.•.^■-..IM.iHin, 

nalauioooi 

j/HiitTij.yi.i.L 
29,4*2,666i 

-277,250,000 
|  510,01 1,000, 

1    lS.V-.ilt.lMKlj 
■    |N\"21,INM* 

|  io,sa  0001 

+l,97fl;097;298 

—10.432.00Oq 
—.5.0 12,000  j» 

hi      liirltjilinp  .\l-ii.  i-I.-.rr 


I-...I,,. 

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55 


82  OUR  ELEVEN  BILLION  DOLLARS 

The  chaotic  condition  of  international  ex- 
change and  its  harmful  effect  as  one  of  the  factors 
hindering  the  recovery  of  the  world's  commerce 
is  summed  up  by  the  statement  of  the  United 
States  Section  of  the  Inter-American  High  Com- 
mission: "For  the  most  part  the  exchange  situa- 
tion merely  reflects  the  economic  situation.  Ex- 
change has  been  likened  to  a  barometer;  the 
barometer  indicates  the  weather,  but  it  does  not 
make  the  weather.  The  dislocations  which  still 
exist  in  the  whole  international  economic  struc- 
ture and  the  derangements  of  the  international 
price  structure  are  mainly  responsible  for  the 
disordered  exchange  situation.  The  exchange 
situation  will  improve  as  the  world's  economic 
recovery  goes  on,  especially  in  Europe,  and  par- 
ticularly as  the  existing  distortions  in  the  price 
structure  disappear. 

11  Confusion  in  the  existing  exchange  situation 
shows  itself  principally  in  two  ways:  First,  in 
the  relative  premiums  and  discounts  on  the  cur- 
rencies of  different  countries,  and,  second,  in  the 
disastrous  daily  fluctuations  of  the  currencies  of 
some  countries. 

"The  export  trade  of  countries  whose  cur- 
rencies are  at  a  premium  is  at  a  serious  disadvan- 
tage. The  trade  of  the  United  States  is  suffering 
more  from  this  derangement  than  any  other  coun- 
try, because  its  currency  is  at  a  premium  with 
respect  to  practically  every  other  country.  The 
other  American  republics  are,  however,  suffering, 


FOREIGN  TRADE,  FOREIGN  EXCHANGE         83 

if  not  in  the  same  degree,  nevertheless  in  much 
the  same  way  as  the  United  States  wherever  a 
similar  relationship  exists  with  regard  to  their 
respective  currencies  and  to  the  currencies  of  the 
different  states  of  Europe. 

"It  is  to  be  expected  that  in  the  course  of  time 
price  levels  and  wage  levels  will  rise  in  countries 
with  depreciated  currency  and  will  decline  in 
countries  with  premium  currencies  until  an  eco- 
nomic equilibrium  is  once  more  attained.  Mean- 
while, however,  while  changes  in  the  relative  pre- 
mium and  discount  on  currencies  are  going  on,  the 
process  is  causing  incalculable  inconvenience  and 
serious  injury — economically,  financially  and 
socially — both  to  the  premium  and  discount 
countries. 

"The  second  phase  of  the  derangement,  that 
is,  the  daily  fluctuation  of  exchange,  is  destruc- 
tive of  sound  and  progressive  business,  because 
it  drives  every  international  transaction  into  the 
realm  of  speculation.  The  daily  fluctuation  in 
exchange  in  many  instances  absorbs  more  than 
the  normal  margins  of  profit,  and  thus  either 
enlarges  the  margins  or  drives  business  to  a  cash 
basis  instead  of  the  accustomed  credit  relation- 
ships. In  either  case  the  result  is  a  decrease  in 
the  entire  commerce  of  the  world. 

"The  fluctuations  are  less  extensive  between 
the  American  republics  than  they  are  between 
the  American  republics  as  a  group  and  Europe, 
but  it  is  impossible  to  dissociate  inter-American 


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FOREIGN  TRADE,  FOREIGN  EXCHANGE    85 

exchange  relations  from  the  European  relation." 
The  need  of  every  country  to-day  is  not  only 
stable  exchange  but  also  a  stable  price  level. 
Stable  prices  are  possible  only  when  there  is 
neither  inflation  nor  deflation.  How  to  secure  this 
needed  stability  awaits  a  practical  solution.  The 
plan  of  stabilizing  prices  by  stabilizing  the  value 
of  gold  met  with  little  support  at  the  Inter- 
national Financial  Conference.  Money,  whether 
specie  or  paper,  has  been  varying  in  value 
throughout  the  centuries,  yet  its  movements  dur- 
ing the  war  and  post-war  periods  have  kept  its 
holders  more  than  ever  on  the  anxious  seat  be- 
cause of  the  instability  of  its  purchasing  power 
through  fluctuations  of  the  dollar,  pound,  franc 
and  other  units  in  foreign  exchange,  through 
variations  in  the  premium  of  gold  in  paper  money 
countries,  through  upward  and  downward  move- 
ments in  price  index  numbers.  The  result  has 
been  that  during  the  last  eight  years  every  man's 
money  has  changed  its  value  more  rapidly  and 
more  irregularly  than  ever  before  in  this  business 
generation,  whether  resting  quietly  in  his  pocket 
or  deposited  in  a  bank  or  invested  in  securities, 
without  his  being  able  to  lift  a  hand  to  help  or 
hinder.  This  instability  is  indicated  in  the  index 
numbers  of  Table  18  (see  page  84). 

The  instability  of  the  purchasing  power  of  the 
dollar  during  the  War  of  1812,  the  Civil  War 
and  the  World  War,  and  the  years  immediately 
following,  is  shown  in  this  tabulation  of  index 


86 


OUR  ELEVEN  BILLION  DOLLARS 


numbers  for  the  prices  of  food,  the  figures  calcu- 
lated from  the  average  prices  of  foodstuffs  for 
five  years  before  each  of  the  three  wars : 

TABLE  19 

INDEX  NUMBERS  OF  FOOD  PRICES  IN  THE  UNITED  STATES 
DURING  THREE  WAR  AND  POST-WAR  PERIODS 


War  of  1812 

Civil  War 

World  War 

1810.... 

..   165 

1860 

93 

1913 

102 

1811.... 

..   160 

1861 

93 

1914 

102 

1812 

.  .   162 

1862 

109 

1915 

102 

1813 

..   189 

1863 

137 

1916 

126 

1814 

.  .   235 

1864 

176 

1917 

178 

1815.... 

..   185 

1865 

200 

1918 

200 

1816.... 

157 

1866 

176 

1919 

219 

1817 

..   159 

1867 

159 

1920 

250 

1819 

..   137 

1868 

148 

1921 

150 

1820 

..   117 

1869 

142 

1922 

134a 

1821 

112 

1870 

131 

1923 

(a)     Index  number  for  January  only. 


VII 

g e r  man  reparations  and . 
-  prepar; ' 


In  the  first  years  of  the  war  we  heard  from  the 
Germans  of  the  huge  indemnities  that  her  con- 
quered enemies,  also  the  United  States  because  of 
alleged  un-neutrality,  would  be  compelled  to  pay 
when  Germany  dictated  the  treaty  of  peace. 
Since  1919  the  Germans  have  been  trying  to 
convince  the  world  that  they  are  unable  to  pay 
reparations  even  when  reduced  to  138,000,000,000 
gold  marks,  a  figure  less  than  the  losses  result- 
ing from  the  German  invasion  of  France. 

The  will  to  pay,  t^Freiich_say^comes  before 
the  capacity  to  pay,  and  the  world  sees  that  Ger- 
many has  the  ability  to  pay  but  not  the  inclination. 
The  judgment  of  public  opinion,  based  on  justice, 
not  on  sentimentality,  is  that  Germany  must  make 
restitution  for  the  damage  caused  by  her  aggres- 
sion, this  restitution  to  be  limited  only  by  her 
capacity  t<ypay  without  endangering  her  economic 
system.  4jVith  almost  constant  conflict  between 
France,  insisting  upon  reparation  payments  ac- 
cording to  schedule  for  her  devastated  regions, 
and  Great  Britain,  as  stubbornly  demanding  a 
revision  that  will  help  devastated  British  com- 

87 


88  OUR  ELEVEN  BILLION  DOLLARS 

merce  to  revive,  Germany  has  taken  full  advan- 
tage of  the  antagonism  between  her  former 
enemies  in  attempting  to  escape  payment  of  a 
debt  to  which  she  has  agreed. 

Germany  continues  to  lack  good  faith — from 
August,  1914,  to  the  Armistice,  from  the  Armistice 
till  to-day,  from  to-day  until  when?  Her  artifi- 
cial substitutes  for  honesty  and  reliability  should 
deceive  nobody.  The  national  policy  is  based  on 
deceit  and  dishonesty.  The  government  has  fur- 
nished the  evidence.  It  has  defaulted  with 
respect  to  treaty  obligations,  notably  disarma- 
ment, the  trials  of  war  criminals,  and  reparations, 
including  the  undervaluation  of  German  exports, 
26  per  cent  of  whose  value  is  due  the  Allies. 

A  dishonest  debtor,  Germany  has  deliberately 
brought  herself  to  a  point  where  the  government 
is  near  bankruptcy — fraudulent  bankruptcy.  If 
bankruptcy  comes,  it  will  be  financial,  not  eco- 
nomic, and  it  will  be  the  result  of  the  Allies '  stupid 
failures  to  take  the  proper  steps  at  the  right  time 
and  of  the  German  plan  to  escape  reparation  pay- 
ments. 

The  shrewd  manipulation  of  the  mark  within 
the  past  year  has  written  a  spectacular  page  in 
financial  history,  a  page  on  which  Germany  is 
credited  with  the  profits  and  her  former  enemies 
debited  with  most  of  the  losses.  To  meet  repara- 
tion payments  and  to  line  German  pockets  with 
gold,  German  bankers,  speculators  and  manufac- 
turers extended  their  dumping  tactics  to  paper 


REPARATIONS  AND  PREPARATIONS    89 

marks,  skilfully  and  at  first  quietly  dumping  them 
in  ever  increasing  quantities  on  the  world's  finan- 
cial centers. 

At  the  beginning  of  1921  the  mark  stood  at  73 
to  the  dollar,  in  February  at  61,  in  March  at  63, 
in  May  at  62,  in  June  at  69,  in  July  at  76,  in 
August  at  84,  in  September  at  104.  On  October 
1,  with  the  mark  at  122,  the  rapid  decline  began. 
By  the  twentieth  of  the  month  it  had  reached  158, 
on  November  1  it  was  at  181,  on  the  third  at  205, 
on  the  fourth  at  240,  on  the  fifth  at  248  and 
on  the  eighth  at  302.  Then  it  went  to  247,  but  it 
took  another  fall  to  287  to  the  dollar  on  Novem- 
ber 20.  Then  it  speeded  back  to  187.  But  why 
continue  the  dizzy  pursuit?  The  mark  is  a 
smashed  Humpty  Dumpty  that  all  the  kaiser's 
horses  and  all  the  kaiser's  men  can't  put  together 
again  at  the  old  par  value  of  23.82,  or  4  to  the 
dollar. 

With  the  mark  plunging  to  unprecedented 
depths  and  the  units  of  other  countries  dislocated 
under  the  pressure,  the  Germans  brazenly  faced 
the  world  with  more  and  more  paper  money. 
Using  wood  pulp  and  printing  press,  they  played 
havoc  in  the  foreign  exchange  markets  and  suc- 
ceeded in  getting  the  creditor  nations  to  pay  a 
part  of  the  German  war  bill  out  of  their  own 
pockets. 

Of  the  hundred  and  more  billions  of  German 
paper  marks,  how  many  are  held  abroad?  For- 
eigners own  20,000,000,000,  according  to  the  presi- 


90  OUR  ELEVEN  BILLION  DOLLARS 

dent  of  the  Reichsbank — but  the  less  credit  given 
to  a  German  banker  or  his  word  the  better.  Other 
estimates,  more  reliable  and  nearer  the  mark  than 
the  Herr  President's,  put  the  total  sum  that  the 
Germans  succeeded  in  selling  abroad  between 
30,000,000,000  and  50,000,000,000  paper  marks. 
Regarding  American  speculations  in  marks  the 
Saturday  Evening  Post  says:  ''Something  like 
one  hundred  million  American  dollars  vanished  in 
the  thin  air  of  the  Germany  currency  balloon. 
Competent  authorities  estimate  that  20,000,000,000 
paper  marks  are  in  the  hands  of  American  specu- 
lators." In  addition  to  the  billions  of  paper 
marks  held  by  speculators  abroad,  it  is  figured 
that  foreign  investors  have  put  into  Germany 
since  1918  from  80,000,000,000  to  100,000,000,000 
paper  marks.  Most  of  the  speculators  and  inves- 
tors bought  at  prices  considerably  higher  than 
those  which  prevailed  in  the  last  months  of  1921, 
consequently,  a  lot  of  dollars,  pounds  and  other 
good  money  went  to  enrich  the  Germans  for 
nothing  more  than  printing. 

Germany's  inflation  is  a  colossal  North  Sea 
bubble,  with  government  and  financiers  playing  an 
adroit  game,  chiefly  at  the  present  and  future  cost 
of  the  Allies  and  the  German  working  classes.  A 
part  of  this  German  game  is  repudiation,  which 
is  bound  to  come  in  some  degree,  and  Germans 
only  are,  through  the  conversion  of  marks  into 
commodities  and  stable  moneys,  more  or  less  pre- 
pared for  repudiation.     The  German  government 


REPARATIONS  AND  PREPARATIONS    91 

will  wish  to  cancel  the  entire  paper  mark  issue. 
This  is  the  step  that  a  certain  American  who 
advises  investors  how  to  invest,  advises  Germany 
to  take,  but  the  Allies  cannot  be  ignored  in  this 
matter.  Conversion  to  a  unit  with  a  low  gold 
value  has  already  been  discussed  in  allied  finan- 
cial circles.  The  losses  due  to  such  partial 
repudiation  can  be  and  must  be  largely  borne  by 
Germany. 

The  German  government  has  intentionally  made 
itself  poor  while  making  German  industries  and 
a  limited  number  of  citizens  rich.  At  the  same 
time  that  the  government  has  been  enormously 
increasing  public  expenditure,  it  has  taken  no 
effective  measures  to  balance  its  budget.  Totally 
inadequate  taxation  has  continued,  and  the  paper 
mark  has  been  depreciated  in  an  amazing  fashion, 
as  may  be  seen  from  Table  20,  on  page  92. 

"The  fall  in  the  value  of  the  mark  is  due  to 
reparations,"  cries  the  government,  and  "Repar- 
ations are  the  cause  for  the  entire  financial  dis- 
tress of  the  Reich,"  says  the  Minister  of  Finance, 
and  their  words  are  echoed  by  verbal  and  printed 
propaganda,  which  carefully  ignores  such  impor- 
tant factors  as  mark  speculation,  government 
subsidies,  colossal  expansion  in  the  treasury  bill 
circulation  and  the  absurdly  low  rates  of  taxa- 
tion. 

While  the  Reichsbank,  once  a  great  commercial 
banking  institution,  has  been  playing  the  printing 
press  to  the  state,  the  government  has  continued 


92 


OUR  ELEVEN  BILLION  DOLLARS 


TABLE  20 

INCREASES  IN  GERMAN  CURRENCY  AND  DECREASES  IN 
EXCHANGE  VALUE  OF  THE  MARK 


Date 

Paper  marks 

Value  in  cents 

1912 — July    25 

1,004,260,000 

1,826,920,000 

2,013,860,000 

7,246,260,000 

10,103,740,000 

10,622,300,000 

16,959,260,000 

22,188,000,000 

27,286,000,000 

35,698,000,000 

49,127,540,000 

68,805,000,000 

70,839,000,000 

69,724,403,000 

71,838,000,000 

75,321,000,000 

77,390,000,000 

80,072,000,000 

86,204,000,000 

87,547,000,000 

91,347,101,000 

104,387,000,000 

113,458,889,000 

112,403,362,000 

23.80 

1913 — July   25 

23.80 

1914 — May  30 

23.80 

191g — Nov      6.. 

5.83 

1917 — Nov.     6 

Nov.  30 

1918 — Nov      1 

Dec.   31 

1919 — May  24. .  . 

Dec.  31 

2.08 

1920 — May  24 

2.50 

Dec.  31 

1.35 

1921 — April  30 

1.50 

May  24  (b) 

1.65 

May  31 

1.57 

June  30 

1.30 

July    30 

1.20 

Aug.  30 

1.15 

Sept   30. . .                   

.82 

Oct.    15 

.66 

Oct.    31..                  

.55 

Dec.   15 

Dec.  31 

.56 
.53 

1922 — Jan.    14 

.54 

(a)  No  quotations  during  the  period  when  the  United  States  was  at  war  with 
Germany.  . 

(6)  The  purchase  of  foreign  cash  balances  for  reparations  began  the  third  week 
in  May. 

the  war  policy  of  low  taxation,  making  possible 
large  fortunes — the  profits  of  Krupp's,  Stinnes 
and  the  German  General  Electric  Company  are 
outstanding  examples  among  a  host  of  individual 
and  corporate  profiteers.  Although  the  treaty 
provides  that  Germany's  taxation  must  equal  that 
of  the  Allies,  her  taxes  do  not  live  up  to  this  pro- 
vision. Taxation  in  defeated  Germany  is  con- 
siderably less  than  in  victorious  France  and  Eng- 
land. Figuring  on  the  basis  of  the  budgets  of 
1921  and  the  purchasing  power  of  the  respective 
currencies  abroad,  the  English  taxpayer  is  paying 


REPARATIONS  AND  PREPARATIONS  93 

about  $60  to  his  government,  the  French  citizen 
about  $45  and  the  German  about  $15.  And  Ger- 
man tax-dodgers  are  to  be  numbered  by  the  mil- 
lions, from  the  ex-kaiser  to  the  socialists.  Ger- 
many's taxation  schedules  have  been  farcical,  and 
the  recent  schemes  of  a  forced  loan  of  1,000,000,- 
000  gold  marks  and  a  voluntary  internal  loan  offer 
inadequate  remedies.  A  comparison  of  post-war 
taxes  and  the  taxation  schedules  of  1913  shows 
that  Great  Britain  has  increased  her  taxes  more 
than  three  times  what  they  were  the  year  before 
the  war,  France  about  twice  and  Germany  prac- 
tically not  at  all. 

While  holding  down  taxation  as  a  part  of  the 
scheme  to  defeat  the  payment  of  reparations,  Ger- 
man officials,  from  the  highest  to  the  lowest,  have 
connived  in  the  established  practice  of  removing 
wealth  from  Germany  to  neutral  countries  in 
Europe,  to  South  America  and  also  to  the  United 
States.  The  result  is  that  a  considerable  per- 
centage of  Germany's  liquid  assets  have  been 
transferred  to  hiding-places  abroad,  where  they 
may  escape  future  German  tax  assessments  and 
the  claims  of  the  Reparation  Commission.  Of  the 
money  transferred  abroad  some  has  actually  been 
smuggled  out  with  the  aid  of  minor  officials, 
whereas  a  considerable  part  has  been  expatriated 
with  governmental  aid  under  the  guise  of  com- 
mercial expansion.  Various  estimates  have  it  that 
from  2,000,000,000  to  7,000,000,000  gold  marks  are 
in  safe  keeping  in  Holland,  Spain,  Switzerland 


94  OUR  ELEVEN  BILLION  DOLLARS 

and  Scandinavia.  Dutch  bankers  believe  that  the 
German  credits  in  Holland  alone  amount  to  more 
than  $200,000,000. 

Germany's  budget  deficit  for  1921,  according  to 
the  Minister  of  Finance,  reached  161,500,000,000 
paper  marks,  with  expenditures,  including  the 
paper  cost  of  reparations,  totaling  240,000,000,000 
marks.  Her  outstanding  treasury  bills  in  No- 
vember, 1921,  amounted  to  212,548,000,000  marks, 
having  risen  from  166,329,000,000  at  the  beginning 
of  the  fiscal  year.  In  January,  1922,  her  floating 
debt  was  247,000,000,000  marks.  Of  this  sum 
132,000,000,000  marks  represented  government 
notes  discounted  by  the  Reichsbank — more  than 
the  total  currency  circulation,  which  was  then 
about  112,500,000,000  marks.  Yet  at  the  time  the 
total  gold  reserves  of  the  Reichsbank,  which  is 
capitalized  at  only  300,000,000  marks,  amounted  to 
only  995,000,000  marks,  less  than  10  per  cent  of 
the  paper  marks  outstanding.  Its  holdings  of 
dollars  and  other  foreign  exchanges  are  thought 
to  have  amounted  to  350,000,000  gold  marks  the 
first  of  the  year.  The  revised  reparation  budget 
brought  before  the  Reichstag  in  February,  1922, 
estimated  187,500,000,000  paper  marks  as  neces- 
sary for  expenditures,  itemized  as  follows:  gen- 
eral reparations,  135,000,000,000;  expenses  for 
armies  of  occupation,  6,200,000,000;  inter-allied 
commissions,  1,800,000,000;  territory  claims  out- 
side reparations,  20,700,000,000;  clearing  house 
expenditures,    18,000,000,000;    interior    expendi- 


REPARATIONS  AND  PREPARATIONS    95 

tures,  resulting  from  the  treaty,  5,600,000,000. 
The  estimated  sum  of  16,500,000,000  marks  from 
taxation  is  made  available  for  reparation  pay- 
ments. The  state  deficit  for  1922,  without  includ- 
ing the  peace  treaty  liabilities,  is  put  at  225,000,- 
000,000  marks,  on  the  basis  of  60  paper  marks  to 
one  gold  mark.  If  sales  of  treasury  bills  in  1922 
maintain  the  same  proportion  as  in  1921  the  new 
inflation  will  amount  to  125,000,000,000  paper 
marks.  If  Germany  is  permitted  to  keep  on  at 
this  rate,  it  will  not  be  long  before  her  floating 
debt  exceeds  500,000,000,000  marks.  In  October, 
1920,  the  German  national  debt  was  418,000,000,- 
000  marks,  exclusive  of  reparations  but  including 
compensations  to  German  citizens  arising  from 
the  treaty  of  peace. 

While  Germany  has  been  proclaiming  to  the 
world  her  inability  to  pay  reparations,  the  govern- 
ment has  systematically  been  squandering  billions 
at  home.  Its  unbalanced  budget  provided  for 
extravagant  expenditures  on  subsidies  and  other 
items.  The  government  has  been  paying  an 
important  part  of  the  cost  of  the  German  people 's 
bread  and  coal  and  meeting  with  budget  appro- 
priations the  deficits  of  the  postal  service  and  rail- 
roads. For  1921  the  railroads  showed  a  deficit 
of  18,700,000,000  marks,  a  loss  said  to  be  greater 
than  the  yield  from  the  income  tax.  This,  taken 
with  the  deficit  of  the  preceding  year,  equals  the 
whole  of  the  book  value  of  the  German  railroads. 
Another  enormous  item  on  last  year's  budget  was 


96  OUR  ELEVEN  BILLION  DOLLARS 

11,000,000,000  marks  for  the  merchant  marine. 

So  Germany's  extravagant  expenditures,  her 
failure  to  collect  adequate  taxes  and  the  inflation 
of  her  currency  have  combined  to  work  against  the 
payment  of  reparations,  which  the  German  gov- 
ernment agreed  to  undertake. 

The  American  vipw  of  this  whole  situation,  was 
summed  up  by  Secretary  Hoover  in  December^ 
1921,  in  reviewing  economic  conditions  in  Europe : 
"The  most  eminent  and  most  dangerous  of  the 
unbalanced  inflation  situations  is  Germany.  Her 
case  depends  upon  the  method  and  volume  of 
reparation  payments.  As  the  United  Sates  does 
not  participate  either  in  its  control  or  its  receipts, 
we  have  no  voice  nor  right  to  interfere.  In  any 
event  this  is  peculiarly  a  European  matter  and 
must  be  adjusted  by  the  parties  at  interest.  It  is 
earnestly  to  be  hoped  that  the  present  negotia- 
tions upon  reparations  may  succeed  in  finding  a 
sound  basis  that  will  secure  permanent  economic 
and  political  stability  to  Germany  and  certainty  of 
regular  payment  to  the  Allies.  With  this  effected 
the  way  is  open  for  constructive  consideration  of 
the  other  states.  The  American  people  have 
never  been,  and  will  not  be,  remiss  in  participation 
in  these  further  measures,  but  our  people  cannot 
successfully  enter  until  those  who  have  control  of 
the  reparations  have  settled  this  major  issue  upon 
so  sound  an  economic  basis  that  we  can  look  on 
the  future  of  Europe  with  confidence." 

Six  weeks  later  followed  the  statement  of  the 


REPARATIONS  AND  PREPARATIONS    97 

United  States  Section  of  the  Inter- American  High 
Commission — it  has  been  noted  that  the  chairman 
is  Mr.  Hoover — containing  the  following  on 
reparations:  "The  German  government  is  not 
meeting  its  reparation  obligations  by  taxation, 
while  other  countries  are  unable  to  mobilize 
enough  taxable  resources  to  cover  their  expendi- 
tures for  reconstruction,  for  military  forces  and 
for  other  purposes.  There  can  be  no  hope  of 
stability  in  the  world's  exchange  until,  in  the 
first  place,  German  reparation  payments  have 
been  put  upon  a  basis  not  only  securing  a  definite 
flow  of  economic  strength  into  the  just  task  of 
rehabilitating  the  devastated  countries,  but  also 
calculated  to  be  within  the  practical  power  of  the 
German  people  to  pay." 

Despite  the  fair  and  sane  attitude  nf  ^m^rj^a^ 
toward  the  subject  of  reparations,  the  publication 
of  this  statement  was  followed  by  harsh  criticism 
in  France.  This,  with  the  expression  of  French 
opinion  in  regard  to  the  enactment  of  the  refund- 
ing bill  with  its  stipulated  interest  and  maturity 
clauses,  our  stand  on  French  submarines  and  cap- 
ital ships  and  Senator  McCormick's  resolution 
asking  the  State  Department  to  supply  figures  on 
the  armament  expenditures  of  our  European 
debtors,  makes  a  sum  total  of  French  criticism 
that  has  served  to  enlighten  the  American  public 
on  the  irritated  and  irritating  state  of  the  French 
mind. 

From  the  various  allied  countries  come  pro- 


98  OUR  ELEVEN  BILLION  DOLLARS 

posals  for  the  settlement  of  the  unsettled  repar- 
ations question,  and  most  of  these  proposed 
solutions  insist  on  linking  the  $11,000,000,000 
owed  to  our  government  by  Europe  with  the 
reparation  sums  to  be  paid  by  Germany. 

An  unofficial  French  solution  is  that  of 
Loucheur,  a  minister "un^er^uiemenceau  and 
Briand  and  one  of  the  wealthiest  men  in  France, 
who  is  not  above  suspicion  in  his  own  country. 
He  has  declared  through  the  French  press, 
the  New  York  World  and  the  London  Daily 
Express,  and  in  an  address  at  Lyons,  that  "all 
debts  among  the  allied  and  associated  powers 
must  be  cancelled  and  Germany's  debt  to  the 
Allies  reduced  in  proportion."  He  holds  to  the 
idea  that  "France,  for  example,  could  pay  her 
debts  to  the  United  States  and  Great  Britain  by 
means  of  a  third  series  of  bonds,  the  so-called  C 
bonds,  to  be  issued  by  Germany  to  the  Reparation 
Commission  in  accordance  with  the  reparation 
system  established  last  May,  and  that  the  United 
States  and  Great  Britain  would  forthwith  throw 
these  obligations  into  the  fire,  thereby  relieving 
Germany  to  that  extent. 

"In  considering  the  reparational  problem,  the 
first  essential  is  to  find  out  what  Germany  can 
pay.  If  she  cannot  pay  in  full  it  becomes  doubt- 
ful that  we  in  turn  can  pay  our  debts  to  the  Allies 
and  our  associates.  And,  if  we  could,  would  not 
the  confusion  become  worse  confounded  than  ever 
— America  be  worse  off  than  before?     The  only 


REPARATIONS  AND  PREPARATIONS    99 

sure  way  out  of  the  present  chaos  is  to  wipe  the 
slate  clean  of  both  Germany's  indebtedness  to  us 
and  ours  to  one  another  and  to  the  United  States, 
with  the  exception  of  the  amount  required  to  meet 
France's  essential  needs." 

Then  there  is  the  Italian  view  of  ex-Premier 
Nitti,  representing  special  financial  interests,  who 
is  said  to  be  peculiarly  favorable  to  the  Germans. 
To  restore  Europe  he  would  establish  a  reduced 
sum  for  reparations,  involving  cancellation  of 
debts  among  the  allied  nations  of  Europe  and  the 
United  States.  Regarding  the  effect  of  his  plan 
on  this  country,  Signor  Nitti  says  in  his  book, 
"Peaceless  Europe":  "The  United  States  is 
running  the  risk  of  seeing  the  purchasing  power 
of  its  best  customers  reduced  and  annihilated, 
which  in  the  long  run  constitutes  an  infinitely 
greater  damage  than  the  renunciation  of  the  sums 
due  it.  And  industrial  crisis  and  widespread 
unemployment  are  far  more  damaging  than  the 
cancellation  of  debts  which  are,  to  a  large  extent, 
uncollectable." 

However,  in  view  of  objections  on  the  part  of 
the  creditors  to  losing  all  the  money  due  them,  the 
Italian  would  have  Germany  pay  a  sum  represent- 
ing 20  per  cent  of  the  intergovernmental  debts 
over  and  above  the  war  indemnity  imposed  upon 
her.  Estimating  that  these  credits  amount  to 
about  $20,000,000,000,  Nitti  would  have  Ger- 
many's payment  of  $4,000,000,000  divided  among 
the  Allies  and  the  United  States  in  proportion  to 


100  OUR  ELEVEN  BILLION  DOLLARS 

the  credits  due  them.  His  plan  means  that  we 
would  receive  about  $2,000,000,000  and  Germany 
would  pay  a  total  sum  of  60,000,000,000  francs. 
He  figures  out  that  Germany  should  pay  only 
20,000,000,000  francs  more  for  reparations,  pay- 
ment to  be  made  largely  in  coal  and  other  mate- 
rials. 

To  be  considered  in  connection  with  reparations 
is  John  Maynard  Keynes,  who  has  played  a  prom- 
inent part  in  Germany's  payments,  or  rather  lack 
of  payments — in  the  eyes  of  the  Germans  a  great 
hero  in  the  tragedy,  from  the  French  viewpoint  a 
villain  in  the  drama  and,  as  others  see  it,  the 
man  who  was  both  right  and  wrong  in  the  great 
European  post-war  farce.  Keynes  performed  a 
real  service  for  the  American  people  when  he 
opened  the  Pandora  steel  box  of  the  Peace  Con- 
ference and  allowed  us  to  see  our  innocents  abroad 
among  the  wolves  of  Europe.  In  his  "Economic 
Consequences  of  the  Peace"  he  also  served  the 
Germans,  supplying  them  with  finished  propa- 
ganda recipes  for  paying  reparations  by  paring 
them — the  parings  thick  enough  to  leave  only  the 
core.  He  also  made  prophecies,  some  of  which 
came  true.  "Many  of  the  misfortunes  which  I 
predicted  have  not  occurred,"  Keynes  admits  in 
his  recent  book,  "A  Revision  of  the  Treaty." 

Starting  with  the  revised  reparation  figure, 
138,000,000,000  gold  marks,  the  English  economist 
chops,  hacks,  halves  and  pares  until  he  reduces 
Germany's  debt  to  the  Allies  to  22,000,000,000 


REPARATIONS  AND  PREPARATIONS        101 

gold  marks,  that  is,  about  $5,500,000,000.  The 
New  York  Tribune  suggests  he  should  summarize 
his  method  in  this  fashion  :  ' '  The  method  I  apply 
in  arriving  at  the  reparation  total  is  an  extremely 
simple  one.  It  is  what  may  be  called  the  method 
of  continuous  halving.  When  expert  investiga- 
tion showed  that  Germany  had  done  injury  to  the 
extent  of  forty  billions  I  said  that  she  should  pay 
twenty  billions.  Later,  when  it  was  agreed  she 
could  mobilize  this  sum,  I  again  cut  this  total  in 
two  and  said  ten  billions  was  the  proper  figure. 
This  now  being  approximately  the  settlement,  I 
urge  five  billions — or,  to  be  exact,  $5,500,000,000." 

Keynes  summarizes  his  new  proposals  as  fol- 
lows: "First,  Great  Britain,  and  if  possible, 
America,  to  cancel  debts  owing  them  from  the 
Governments  of  Europe  and  to  waive  their  claims 
to  any  share  of  German  reparations.  Second, 
Germany  to  pay  1,260,000,000  gold  marks  per 
annum  for  thirty  years  and  to  hold  available  a 
lump  sum  of  1,000,000,000  gold  marks  for  assist- 
ance to  Poland  and  Austria.  Third,  this  annual 
payment  to  be  assigned  in  shares — 1,080,000,000 
gold  marks  to  France,  180,000,000  to  Belgium." 

Careful  analysis,  without  sentiment  or  preju- 
dice, shows  that  Germany  can  pay  a  much  larger 
sum  than  Keynes'  latest  figure,  and  other  coun- 
tries are  anxiously  waiting  for  France  and  Eng- 
land to  decide  upon  a  united  course  of  action  and 
together  compel  Germany  to  institute  financial 
and  fiscal  reforms.     But  the  allied  governments 


102  OUR  ELEVEN  BILLION  DOLLARS 

do  little  but  argue.  The  British  government 
keeps  on  pointing  out  that  England's  existence 
as  a  great  nation  demands  the  resumption  of  nor- 
mal trade  relations.  This  she  should  have,  just 
as  should  all  the  great  and  small  nations  to  which 
this  same  resumption  means  a  return  to  normal. 
France  wishes  security  from  future  German 
aggression,  and  she  should  have  it,  not  only  for 
her  own  sake,  but  so  the  whole  continent  of 
Europe  may  not  be  turned  into  an  armed  camp 
preparing  for  the  next  war.  France  also  wishes 
payments  by  the  Germans,  as  partial  reparation 
for  her  devastated  regions,  and  Germany  will  be 
able  to  pay  a  large  sum  if  England  and  France 
stand  together. 

But  Lloyd  George,  distrusted  by  the  English 
business  man  and  accused  of  representing  other 
than  British  interests  in  the  triangular  game  with 
France  and  Germany,  has  kept  on  playing  politics 
with  economics.  He  has  helped  delude  a  large 
part  of  the  British  public  with  the  notion  that  the 
more  reparations  Germany  has  to  pay  the  greater 
will  be  her  competition  with  British  industries — 
as  if  German  competition  will  not  be  as  keen 
against  English  and  American  products,  repara- 
tions or  no  reparations.  Most  of  the  time  he 
chooses  to  ignore  that  the  stipulated  reparations 
constitute  a  debt  that  is  the  first  charge  on  Ger- 
many's entire  wealth,  but  the  Federation  of  Brit- 
ish Industries  takes  a  stand  differing  from  that  of 
the  Premier  from  Wales,  since  the  German  gov- 


REPARATIONS  AND  PREPARATIONS        103 

eminent  is  not  to  be  trusted  in  taxing  Ger- 
man industries  for  meeting  the  reparation 
payments.  This  organization  of  British  manu- 
facturers has  a  plan  whereby  reparation  pay- 
ments would  be  transferred  from  the  German 
government  to  German  industry,  the  Allies  to  hold 
or  sell  to  private  persons  mortgages,  or  first 
preference  interest-bearing  shares,  on  German 
industrial  and  commercial  firms,  banks,  railroads, 
canals,  shipping  lines  and  so  on. 

Reparation  puts  the  question  as  to  which  tax- 
payer shall  pay.  Every  billion  the  Germans 
escape  paying  means  just  so  much  more  in  taxes 
for  the  French,  Belgians,  Italians  and  British. 
The  French  paid  beginning  in  1871  with  billions 
of  francs  in  gold  and  millions  of  tons  of  iron  ore 
in  Lorraine,  laying  the  foundation  of  the  great 
modern  wealth  of  the  German  people.  The  peace 
terms  of  1871  seemed  overwhelming  to  the  world 
of  that  time,  and  the  Prussian  statesmen  intended 
that  they  should  be.  The  French  billions  wiped 
the  costs  of  the  war  from  the  budget  of  the  new 
empire,  established  German  currency  on  a  gold 
basis  and  provided  the  means  for  the  German 
government  to  carry  out  various  domestic  im- 
provements. There  was  no  plan  or  propaganda 
against  the  indemnity,  for  France  was  then  doing 
the  paying  and  Germany  the  receiving.  France 
cannot  now  be  expected  to  add  to  Germany's 
wealth  of  $110,000,000,000,  if  only  because  France, 
thanks  in  the  main  to  the  Germans,  has  the  largest 


104  OUR  ELEVEN  BILLION  DOLLARS 

per  capita  debt  in  the  world.  The  French  debt 
increased  during  the  war  more  than  four  times 
what  it  was  in  1914,  and  it  has  more  than  doubled 
since  the  Armistice.  In  1914,  it  was  34,000,000,000 
francs;  on  December  31,  1918,  it  amounted  to 
151,000,000,000;  on  December  31,  1919,  it  stood  at 
240,000,000,000;  on  September  30,  1920,  it  was 
285,000,000,000;  by  February  28,  1921,  it  had 
reached  302,000,000,000,  and  on  September  30, 
1921,  it  totaled  320,000,000,000  francs. 

France^the  government,  the  people,  the  press 
— 3ias  made  great  mistakes  in  policy  since  the 
Armistice,  but  the  French  know  best  of  all  the 
German  people  and  their  character  and  what  may 
be  expected  of  them. 

While  trying  to  escape  paying  reparations, 
preparations  for  the  next  war  have  been  going  on 
in  Germany.  These  preparations  began  when  the 
Armistice  was  signed;  when  and  how  they  are 
going  to  end  is  a  matter  in  which  not  France  alone, 
but  all  the  world,  is  interested.  It  is  not  that  the 
mass  of  German  people  to-day  wish  another  war, 
but  powerful  influences  are  at  work  to  gain  at 
some  time  in  the  future  what  Germany  lost  by  not 
winning  this  war.  The  German  war  preparations 
are  at  present  not  material  except  in  so  far  as 
they  can  be  concealed  in  laboratories,  secret 
recesses  and  the  innermost  government  offices. 

The  chief  factor  of  the  present  preparation  is 
propaganda.  The  most  dangerous  form  is  the 
insidious  propaganda  in  the  German  schools,  pre- 


REPARATIONS  AND  PREPARATIONS        105 

paring  the  coming  generation  for  the  state  of 
mind  that  will  again  make  the  German  people 
willing  to  wage  war.  But  any  other  attitude  can 
hardly  be  expected  in  a  Germany  that  is  unre- 
pentant so  far  as  the  last  war  is  concerned.  To- 
day the  great  majority  of  Germans,  no  matter 
what  their  class  or  position,  refuse  to  admit  that 
Germany  was  in  any  way  responsible  for  the  war. 
They  claim  that  the  war  was  one  of  self-defense. 
To  them  justification  of  the  violation  of  Belgian 
neutrality  lies  in  their  assertion  that  the  French 
and  English  would  have  attacked  them  through 
Belgium  if  the  German  army  had  not  crossed  the 
border  first.  The  Germans  still  justify  the  sink- 
ing of  the  Lusitania  and  every  other  act  of  fright- 
fulness.  Their  spirit  of  hatred  is  not  dead;  the 
irresponsibility  to  moral  obligations  which  charac- 
terized them  during  the  war  has  increased  since 
1918. 

Too  many  Germans  wish  the  restoration  of  the 
Hohenzollerns.  Too  many  strings  in  the  republi- 
can government  are  being  pulled  by  the  financiers 
and  industrialists,  who  through  war  profits  and 
the  currency  depreciation  have  filled  their  pockets 
and  foreign  bank  accounts  with  gold.  Germany 
is  wealthier  to-day  than  at  the  end  of  the  war,  but 
the  wealth  is  in  the  hands  of  a  limited  number. 
Her  factories  are  intact  and  busy,  her  industries 
have  expanded,  her  agriculture  is  flourishing. 
Wages  are  low,  but  large  profits  are  being  made 
and  big  dividends  paid. 


106  OUR  ELEVEN  BILLION  DOLLARS 

Yet  reparations  cannot  be  paid,  the  Germans 
cry,  loudest  of  all  the  bankers,  speculators  and 
industrialists,  who  have  the  money  with  which  to 
pay  them.  And  German  propaganda  goes  on  to 
further  the  mistaken  idea  that  payment  of 
reparations  will  ruin  the  trade  of  the  Allies  and 
America,  that  German  bankruptcy  would  ruin 
Europe  and  shake  the  rest  of  the  world. 

All  of  which  goes  to  show  that  Germany 's  word 
to-day  is  worth  no  more  than  "the  scrap  of 
paper"  of  1914  and  even  less  than  the  paper  mark 
of  1922. 


VIII 

EUROPEAN  PLANS  TO  REVIVE 
WORLD  TRADE 

Greed  and  selfishness   are  the  distinguishing 
characteristics  of  most  of  the  schemes  advanced 
abroad  for  financing  Europe 's  commerce  and  her 
liabilities    with    American    products    and    other 
assets  of  the  United  States,  notably  that  gold  we 
hear  so  much  about  but  never  see  except  in  small 
samples  at  Christmas  time.      The  supporters  of 
these  get-Europe-rich-quick   schemes   display   a 
versatility   that   ranges    from    gold   bricks    and 
worthless  paper  money  to  the  lowest  forms  of 
high  finance  and  hopes  of  another  war — a  war  in 
which  Onkel  Sam,  fighting  Japan,  will  be  com- 
pelled to  buy  Europe 's  old  munitions  and  rusting 
armaments  with  the  gold  that  once  was  Europe's. 
Of  the  suggestions  so  far  advanced  by  European 
financiers  for  restoring  the  world  to  economic 
normality  the  most  important  is  that  of  C.  E.  ter 
Meulen,  a  banker  of  Amsterdam.     Mijnheer  ter 
Meulen  officially  announced  his  ambitious  plan  of 
international  credits,  now  generally  known  as  the 
ter  Meulen  Plan,  on  October  2,  1920,  at  the  Inter- 
national Financial  Conference  in  Brussels.     This 
conference  adopted  the  plan,  and  shortly  after- 

107 


108  OUR  ELEVEN  BILLION  DOLLARS 

ward  it  was  endorsed  by  the  Council  of  the  League 
of  Nations.  Then  the  Finance  Section  of  the 
League  set  to  work  to  prepare  the  plan  for  world 
consumption,  with  special  regard  to  feeding  it  to 
America. 

Since  its  first  presentation  the  ter  Meulen  Plan 
has  met  with  varying  degrees  of  approval  from 
representatives  of  finance,  industry  and  commerce 
throughout  the  world.  In  the  United  States  the 
endorsement  of  the  American  Bankers'  Associa- 
tion makes  a  prominent  showing,  this  important 
organization  of  bankers  having  adopted  the  fol- 
lowing resolution  at  their  1921  convention  after 
hearing  the  ter  Meulen  Plan  described  in  detail  by 
Sir  Drummond  Fraser,  acting  for  the  Finance 
Section  of  the  League  of  Nations : 

"Believing  that  the  restoration  of  normal  con- 
ditions in  the  world  and  in  our  own  country 
depends  upon  the  reestablishment  of  a  proper 
balance  between  nations,  and  that  the  cooperation 
therein  of  the  United  States  is  desirable  and 
necessary  for  the  reestablishment  of  normal  con- 
ditions in  American  business  life,  we  approve  the 
principles  of  the  plan  for  an  international  credit 
organization,  known  as  the  ter  Meulen  Plan.  This 
plan  offers  a  means  of  mobilizing  the  assets  of  the 
war-stricken  countries  under  responsible  inter- 
national supervision  and  of  issuing  bonds  based 
on  these  assets,  thereby  enabling  them  to  secure 
long-term  credits  for  the  payment  of  essential 
imports.      The  Commerce  and  Marine  Commis- 


PLANS  TO  REVIVE  WORLD  TRADE        109 

sion  of  the  Association  is  hereby  directed  to  make 
the  necessary  investigations  for  the  purpose  of 
recommending  the  best  means  of  cooperation  on 
the  part  of  this  Association  in  carrying  out  the 
principle  of  the  ter  Meulen  Plan." 

Among  the  business  organizations  that  have 
accepted  the  ter  Meulen  Plan  as  the  best  solution 
of  the  problem  confronting  world  trade,  the 
World's  Cotton  Conference  and  the  International 
Chamber  of  Commerce  stand  out  conspicuously. 
This  plan  of  international  credits  was  incor- 
porated in  the  consortium  scheme  adopted  by  the 
conference  of  allied  financiers  and  industrial 
leaders  for  presentation  to  the  Cannes  conference 
as  the  most  effective  means  for  the  economic 
restoration  of  Europe. 

This  proposed  consortium,  known  as  the  Inter- 
national Corporation  for  Restoring  European 
Trade,  with  $100,000,000  capital,  would  act  as  a 
clearing  house  for  credits  far  in  excess  of  its 
capitalization.  Its  first  purpose  would  be  to 
restore  railroads  and  kindred  agencies  in  coun- 
tries where  economic  stagnation  is  partly  due  to 
the  lack  of  transportation,  notably  Russia.  Each 
nation  participating  in  the  formation  of  the  cor- 
poration would  establish  an  affiliated  national 
corporation,  this  subsidiary  organization  to  un- 
dertake no  work  other  than  that  assigned  it  by 
the  parent  body,  which  would  have  its  headquar- 
ters in  London.  The  corporation  would  be 
created  by  a  special  act  of  the  British  Parliament, 


110  OUR  ELEVEN  BILLION  DOLLARS 

specifying  its  powers,  duties,  functions,  responsi- 
bilities and  liabilities,  with  special  provisions  for 
the  exemption  of  foreign  holdings  from  income 
tax.  The  central  corporation  would  consist  of 
representatives  of  the  national  corporations 
formed  in  England,  France,  Italy,  Belgium,  Japan 
and  the  United  States,  if  this  country  chose  to 
enter  the  organization.  The  supporters  of  this 
consortium  scheme  consider  American  participa- 
tion as  important  eventually  but  by  no  means  pri- 
marily essential  to  the  establishment  of  the  organi- 
zation. Germany  would  be  admitted  to  the  cor- 
poration with  the  understanding  that  half  of  the 
profits  accruing  on  the  shares  of  the  German 
national  corporation  would  be  turned  over  for 
reparation  payments.  The  council  governing  all 
operations  would  consist  of  two  representatives 
from  England,  two  from  France  and,  with  the 
usual  "if,"  two  from  the  United  States,  and  one 
from  each  of  the  other  countries. 

The  assets  of  the  countries  aided  by  the  inter- 
national corporation  would  be  pledged,  in  accord- 
ance with  the  ter  Meulen  Plan,  as  security  for  the 
loans  involved  in  transactions  where  the  con- 
sortium was  not  granted  a  concession  for 
operation.  Objections  to  the  consortium  are 
based  on  the  ground  that  credits  cannot  be 
granted  to  more  or  less  bankrupt  countries 
unless  secured  by  assets  realizable  abroad.  The 
feeling   is   widely   entertained    in    British   com- 


PLANS  TO  REVIVE  WORLD  TRADE        111 

mercial  circles  that  the  ter  Meulen  Plan  provides 
the  way  out  of  such  credit  difficulties. 

At  the  International  Financial  Conference 
Mijnheer  ter  Meulen,  who  is  said  to  have  spent 
two  years  in  working  out  the  details  of  his  inter- 
national credit  plan,  claimed  that  his  method 
would  enable  private  exporters  in  one  country  to 
sell  to  private  importers  in  another  without  inter- 
fering with  existing  organs  of  trade  and  would 
restore  international  trading  to  its  normal  pros- 
perity. He  suggested  a  central  commission  of 
financial  experts  of  recognized  ability  and  repute, 
appointed  by  the  League  of  Nations,  to  supervise 
the  arrangements  with  those  countries  participat- 
ing in  the  plan. 

To  see  how  the  ter  Meulen  plan  would  operate, 
according  to  its  originator,  a  specific  example  may 
be  considered.  Imagine  that  the  United  States, 
now  the  world's  leading  creditor  nation,  has 
joined  in  the  ter  Meulen  Plan  with  Great  Britain 
and  the  Irish  Free  State  and  with  other  war- 
stricken  and  unstricken  countries  of  Europe.  For 
example,  France,  whose  importers  have  been  in 
need  of  credits,  has  been  informed  by  the  Inter- 
national Commission,  which  is  supervising  the 
operations  under  the  ter  Meulen  Plan,  that  the 
revenues  it  held  ready  to  pledge  for  credits 
granted  to  importers  of  the  country  have  been 
examined  and  the  limit  in  gold  value  which  could 
be  furnished  against  them  fixed  at,  for  example, 


112  OUR  ELEVEN  BILLION  DOLLARS 

1,000,000,000  francs.  The  French  government 
would  prepare  a  bond  issue  secured  by  the  rev- 
enues approved  by  the  International  Commission 
and  bearing  interest  fixed  at,  say,  6  per  cent  by 
mutual  agreement  between  the  French  Ministry 
of  Finance  and  the  International  Commission, 
these  bonds  to  mature  in  five,  ten  and  fifteen  years. 
The  date  of  maturity  of  these  bonds  has  nothing 
to  do  with  the  period  for  which  the  credits  are 
granted,  since  this  phase  of  the  transaction  is 
arranged  between  the  importer  and  exporter. 

At  this  point  enter  Monsieur  Franc  Papier,  of 
Paris,  importer  of  foodstuffs  and  raw  materials 
for  manufacturing  purposes,  and  the  Spot  Cash 
Co.,  of  New  York,  Chicago  and  San  Francisco,  who 
sell  coal,  corn,  pork,  steel,  cotton,  copper  and 
almost  anything  else  you  can  think  of.  Orders 
from  Europe  for  their  products  have  long  been  an 
important  part  of  their  business,  but  since  1919 
their  export  trade  has  suffered  in  an  alarming 
and  unprecedented  fashion,  with  the  direct  result 
that  workers  in  their  offices  and  factories  all  over 
the  country  have  been  laid  off  until  former  clients 
abroad  have  real  money  with  which  to  pay  for  the 
goods  they  need. 

Since  the  war  M.  Franc  Papier  and  a  lot  of 
societes  anonymes,  limited  companies,  unlimited 
individuals  and  Gesellschaften  mit  beschraenkte.r 
Haftung  have  been  asking,  demanding,  imploring 
the  Spot  Cash  Co.  to  sell  them  on  credit  or  in 
francs,  marks   or  what  not,  but   the   American 


PLANS  TO  REVIVE  WORLD  TRADE        113 

company,  which  will  try  anything  once,  learned  a 
few  lessons  in  European  credits  and  depreciated 
currency  back  in  1919  and  1920  that  will  last  the 
president,  directors  and  sales  managers  until  the 
next  war  and  after,  no  matter  whether  it  is  busi- 
ness wTith  supposedly  reputable  firms  in  francs, 
marks,  kronen,  lira  or  any  other  paper  money. 

Under  the  ter  Meulen  Plan,  M.  Franc  Papier, 
who  wishes  to  purchase  agricultural  implements, 
wheat  and  cotton  to  the  extent  of  $300,000,  first 
secures  the  consent  of  the  International  Commis- 
sion to  import  such  commodities  into  France 
against  the  security  of  the  so-called  ter  Meulen 
bonds  issued  by  the  French  government.  Since 
M.  Franc  Papier  has  a  reputable  business  and  the 
products  he  wishes  to  import  are  essentials — 
materials  considered  necessary  for  the  economic 
welfare  of  his  country — the  International  Com- 
mission issues  a  permit  to  M.  Franc  Papier  for 
the  purchase  of  $300,000  worth  of  wheat,  cotton 
and  agricultural  implements  in  the  United  States. 

M.  Franc  Papier  then  settles  with  the  Spot 
Cash  Co.  the  credit  terms  he  is  to  be  allowed — 
the  period  for  which  the  credit  is  granted,  the  rate 
of  interest  and  the  collateral,  which  is  the  nom- 
inal value  of  the  bonds  of  the  French  government 
put  up  by  M.  Franc  Papier.  Through  the  Min- 
istry of  Finance  he  borrows  these  ter  Meulen 
bonds,  of  sufficient  value  to  cover  his  transaction 
with  the  Spot  Cash  Co.,  and  for  them  he  puts  up 
security  satisfactory  to  his  own  government.    The 


114  OUR  ELEVEN  BILLION  DOLLARS 

ter  Meulen  bonds  used  in  this  transaction  will  be 
payable  both  as  to  principal  and  interest  in  dol- 
lars, the  currency  of  the  exporter 's  country. 

The  pledged  revenues  of  the  French  govern- 
ment, which  back  M.  Franc  Papier 's  purchase 
from  the  Spot  Cash  Co.,  are  being  managed  by 
French  officials,  since  in  this  case  the  Inter- 
national Commission  considers  the  borrowing 
government  sufficiently  capable  and  trustworthy. 
But  if  it  should  so  happen  that  France  should  fail 
to  fulfil  any  of  its  obligations,  the  management  of 
the  pledged  revenues  will  at  once  be  transferred 
to  the  International  Commission,  which  will  turn 
over  the  proceeds  from  them  to  the  United  States 
and  other  countries  whose  exporters  have  ex- 
tended credit  facilities  under  the  scheme,  in  pro- 
portion to  the  total  of  credits  granted  by  the 
exporters  of  such  countries.  From  these  funds 
provision  will  be  made  for  the  payment  of  matur- 
ing coupons  and  for  a  sinking  fund. 

If  M.  Franc  Papier  should  default,  the  bonds 
held  as  collateral  for  the  transaction  with  the 
American  exporters  will  be  offered  to  the  French 
government,  against  payment  of  any  sums  out- 
standing under  the  credit,  plus  accrued  interest. 
Should  the  French  government  fail  to  redeem  the 
credit  within  two  weeks,  the  Spot  Cash  Co.  will 
be  at  liberty  to  sell  out  the  collateral.  Such  de- 
faulted bonds  the  International  Commission 
should  be  able  to  purchase  from  the  sinking  fund. 
In  the  ordinary  course  of  the  transaction  the  Spot 


PLANS  TO  REVIVE  WORLD  TRADE        115 

Cash  Co.,  upon  receiving  from  M.  Franc  Papier 
the  ter  Meulen  bonds  backing  the  $300,000  order, 
would  transfer  them  for  cash  to  a  bank  or  to  an 
export  credit  corporation  of  the  kind  formed 
under  the  Edge  Act. 

Here  is  where  the  American  investor  and  his 
dollars  come  in.  Investors,  large  and  small,  are 
not  to  be  offered  the  ter  Meulen  bonds  direct,  but 
the  cash  necessary  to  enable  the  banks  and  cor- 
porations to  finance  the  Spot  Cash  Company's 
$300,000  sale  to  M.  Franc  Papier  and  a  multitude 
of  similar  transactions  is  first  to  come  from  the 
sale  to  investors  of  special  foreign  trade  bonds 
secured  by  the  ter  Meulen  bonds  held  by  the  bank 
or  Edge  Act  corporation  discounting  them. 

When  M.  Franc  Papier 's  credit  expires  and  he 
meets  his  obligations  in  full,  the  Spot  Cash  Co. 
or  the  financial  institution  holding  the  pledged 
bonds  will  return  them  to  M.  Franc  Papier,  who 
in  turn  will  hand  them  back  to  the  French  govern- 
ment to  obtain  the  release  of  his  security.  The 
French  government  will  then  be  in  a  position  to 
loan  these  bonds  again  for  a  new  transaction. 

"It  should  be  clearly  understood  that  this  plan 
acts  in  no  sense  whatever  as  a  monopoly,"  says 
Mijnheer  ter  Meulen.  "The  exporter  cannot, 
however,  obtain  bonds  as  a  pledge  unless  the 
credit  has  been  sanctioned  by  the  International 
Commission.  As  general  conditions  improve, 
there  will  be  less  inclination  on  the  part  of  im- 
porters to  apply  to  the  International  Commission. 


116  OUR  ELEVEN  BILLION  DOLLARS 

The  sooner  this  happens  the  better  it  will  be.  My 
plan  of  international  credits  is  meant  only  to 
make  possible  transactions  which  otherwise  could 
not  have  been  brought  about. ' ' 


IX 

THE  FIRST  INTERNATIONAL  BANK— AN 
AMERICAN  PLAN  FOR  RESTORING 
EUROPE 

While  Europe  has  been  putting  forward  all 
sorts  of  schemes  in  the  vain  endeavor  to  stabilize 
exchange  before  stabilizing  herself,  Americans 
have  been  advancing  ideas  on  the  salvation  of 
Europe.  Many  of  our  American  suggestions  have 
been  expressed  in  the  heat  of  after-dinner 
speeches  or  under  the  spot-light  of  newspaper 
columns  offering  the  opportunity  of  publicity, 
without  careful  consideration  or  understanding  of 
Europe's  situation  and  the  economic  and  political 
laws  affecting  it. 

Those  plans  which  are  important  enough  and 
sufficiently  developed  to  deserve  attention  all  in- 
volve direct  and  close  relations  between  the 
United  States  and  the  European  nations,  and  they 
are  based  upon  an  international  bank  with  a  capi- 
talization of  ten  figures — at  least  a  billion  dollars 
or  more — except  in  one  case.  The  plan  of  Amer- 
ican origin  that  so  far  has  received  the  most 
attention  here  and  abroad  is  that  of  Frank  A. 
Vanderlip,  banker  and  financier,  who  went  to 
Europe  in  1921  for  the  purpose  of  studying  the 
economic  situation  at  first  hand. 

117 


118         OUR  ELEVEN  BILLION  DOLLARS 

After  visiting  nearly  every  country  Mr.  Van- 
derlip  formulated  a  tentative  plan,  the  details  of 
which  are  given  in  his  book,  "What  Next  in 
Europe?"  "Whether  this  plan  proves  to  be 
acceptable  or  not,"  says  Mr.  Vanderlip,  "I  have 
a  good  deal  of  confidence  in  stating  that  any  pro- 
posal that  is  successful  in  averting  the  complete 
wrecks  of  currencies  in  a  number  of  nations  must 
be  formulated  in  the  light  of  the  two  principles  I 
have  laid  down.  First,  that  in  the  present  situa- 
tion there  is  nothing  curative  at  work,  that  the 
disease  is  a  progressive  one  and  that  there  must 
be  outside  help.  Second,  that  a  currency  must 
be  created  that  cannot  be  depreciated  by  the  unre- 
stricted use  of  the  government  printing  press." 

Having  absolute  faith  in  the  principles  of  our 
Federal  reserve  banking  system,  Mr.  Vanderlip 
applied  them  in  evolving  his  plan  of  a  federal 
reserve  bank  for  Europe,  or  as  he  terms  it,  the 
Gold  Reserve  Bank  of  the  United  States  of 
Europe.  This  institution  would  be  organized  as 
a  corporation,  under  the  laws  of  no  particular 
country,  with  an  ultimate  paid-in  capital  of 
$1,000,000,000  in  gold.  The  stock  would  be  dis- 
tributed in  shares  of  $100  each,  open  to  any  indi- 
vidual or  organization  able  to  pay  for  them  in 
gold.  Although  it  is  presumed  that  the  bulk  of 
the  initial  subscriptions  would  come  from  the 
United  States,  all  shares  owned  in  America  would 
be  purchased  eventually  by  Europeans.  Stock 
bought  by  Americans  would  bear  the  designation 


THE   FIRST   INTERNATIONAL  BANK       119 

"A,"  and  that  by  Europeans  "B."  These  two 
classes  would  be  issued  under  the  same  terms, 
with  the  exception  that  the  "A,"  or  American, 
stock  would  be  subject  to  retirement  by  call  at 
possibly  $120. 

The  Gold  Reserve  Bank  of  the  United  States  of 
Europe  would  be  controlled  by  a  board  composed 
of  nine  trustees,  five  of  them  Americans  and  four 
Europeans,  to  hold  their  positions  for  life  or  until 
reaching  a  designated  age  limit.  Men  of  the 
highest  character  and  widest  financial  experience, 
they  would  have  to  give  up  all  other  financial  con- 
nections and  agree,  in  case  of  resignation,  not  to 
engage  in  any  banking  or  financial  business  until 
after  an  interval  of  five  years.  New  trustees,  to 
be  elected  by  the  board,  must  be  approved  by  a 
majority  of  the  members  of  the  Federal  Reserve 
Board  at  Washington.  The  trustees  would  elect 
a  governor  general  and  a  deputy  governor  general 
from  among  their  number,  the  governor  general 
to  be  a  citizen  of  the  United  States.  The  pro- 
visions regarding  American  members  and  Amer- 
ican control  would  likely  lapse  when  75  per  cent 
of  the  "A."  stock  had  been  converted  into  "B" 
stock. 

A  Gold  Reserve  National  Bank,  with  a  board  of 
nine  governors,  would  be  established  in  each 
European  country  wishing  such  a  branch  of  the 
Gold  Reserve  Bank  of  the  United  States  of 
Europe  and  meeting  the  provisions  that  it  furnish 
free  of  all  expense  ground  and  buildings,  ade- 


120  OUR  ELEVEN  BILLION  DOLLARS 

quate  and  fully  equipped  for  the  purposes  and 
having  ex-territorial  rights  of  a  character  pos- 
sessed by  a  foreign  embassy,  and  that  it  give 
assurances  that  no  legislation  would  be  enacted  to 
hamper  the  free  circulation  of  the  notes  of  the 
Gold  Reserve  Bank  within  the  country  and  their 
exportation  and  importation,  or  the  making  of 
contracts  payable  in  these  notes,  or  against  the 
opening  of  deposit  accounts  in  these  notes  in  other 
banks. 

The  Gold  Reserve  Bank  of  the  United  States  of 
Europe  would  issue  circulating  dollar  notes,  re- 
deemable under  normal  conditions  on  demand  in 
gold,  and  it  could  make  advances  of  these  notes  to 
the  Gold  Reserve  National  Banks  against  deposits 
of  gold  or  of  gold  and  endorsed  commercial  paper, 
a  minimum  of  not  less  than  20  per  cent  of  gold  to 
be  received  against  all  circulating  notes  and  kept 
as  a  reserve  back  of  all  outstanding  notes. 

In  making  loans  and  receiving  deposits  each 
Gold  Reserve  National  Bank  would  deal,  not  with 
individuals,  but  with  incorporated  commercial 
banks.  It  would  make  loans  only  against  col- 
lateral to  an  amount  equal  to  perhaps  150  per  cent 
of  the  loan,  and  the  collateral  would  have  to  be 
short-term  commercial  paper  arising  out  of  legiti- 
mate commercial  transactions  and  strictly  of  a 
kind  known  as  self-liquidating  paper,  such  as 
loans  against  produce  during  the  period  of  its 
transport  from  the  grower  to  the  consumer,  or 
against    raw   materials    during    the    process    of 


THE  FIRST   INTERNATIONAL  BANK       121 

manufacture  and  until  their  sale  as  manufactured 
goods,  or  against  merchandise,  to  be  paid  when 
the  merchant  sells  the  goods  bought  with  the  pro- 
ceeds of  the  loan.  No  loans  would  be  made 
against  stocks,  bonds,  mortgage  collaterals  or 
government  bonds. 

The  rates  of  discount  fixed  by  the  governors  of 
the  Gold  Reserve  National  Banks  would  have  to 
be  approved  by  the  trustees.  Each  Gold  Reserve 
National  Bank  would  pay  a  dividend  of  8  per  cent 
to  the  Gold  Reserve  Bank  of  the  United  States  of 
Europe  upon  the  stock  of  the  branch  held  by  the 
parent  institution.  One  part  of  the  remaining 
earnings  would  be  retained  by  the  Gold  National 
Bank  as  surplus,  another  would  be  paid  in  lieu  of 
taxes  to  the  governments  of  the  countries  in  which 
the  banks  are  located,  and  still  another  part  would 
be  used  as  extra  dividends  payable  to  the  Gold 
Reserve  Bank  of  the  United  States  of  Europe. 
The  stockholders  of  the  Gold  Reserve  Bank 
should  receive  a  regular  dividend  of  8  per  cent, 
also  extra  dividends  amounting  in  the  aggregate 
to  the  total  extra  dividends  received  from  the 
Gold  Reserve  National  Banks.  These  branch 
banks  would  pay  all  the  Gold  Reserve  Bank's 
expenses  of  administration,  including  the  salaries 
of  the  trustees  and  the  cost  of  printing  and  circu- 
lating its  notes. 

A  second  international  bank  succeeded  in  mak- 
ing its  way  into  Congress,  to  rest  in  a  pigeon-hole. 
This  so-called  Bank  of  Nations  is  the  principal 


122  OUR  ELEVEN  BILLION  DOLLARS 

feature  of  a  bill  introduced  by  Senator  Hitchcock, 
of  Nebraska,  who  believes  that  international  com- 
merce can  best  be  reestablished  by  creating  a 
world  banking  and  currency  system.  His  Bank 
of  Nations  would  provide  credit  upon  which 
exporters  and  importers  can  do  a  normal  busi- 
ness, would  ease  the  debt  burdens  of  European 
governments  and  would  stabilize  exchange. 

Senator  Hitchcock's  bill  calls  for  an  inter- 
national bank  in  the  form  of  a  corporation  capi- 
talized at  $2,400,000,000.  Of  this  sum  the  United 
States  government,  through  the  Secretary  of  the 
Treasury,  would  hold  $1,300,000,000  and  with  it 
the  controlling  interest.  Stock  to  the  amount  of 
$200,000,000  would  be  in  the  hands  of  banks  and 
bankers,  exporters  and  importers,  and  the  remain- 
ing $900,000,000  of  capital  would  be  offered  to 
those  nations  of  the  world  willing  to  enter  into 
treaties  with  the  United  States,  the  treaties  to 
define  their  rights  and  obligations  as  stockholders 
in  the  international  banking  system.  One-third  of 
each  stock  subscription  would  be  payable  in  gold 
and  the  other  two-thirds  in  interest-bearing  bonds 
of  solvent  governments,  described  as  govern- 
ments making  arrangements  with  the  United 
States  to  reduce  armaments  so  as  to  become  sol- 
vent. The  directors  would  number  twenty-four, 
one  to  each  $100,000,000. 

The  Bank  of  Nations  would  have  the  power  to 
issue  about  $3,000,000,000  in  currency,  to  be 
known  as  the  international  dollar.    This  currency, 


THE  FIRST   INTERNATIONAL  BANK       123 

in  Senator  Hitchcock's  opinion,  would  displace 
gold  as  the  medium  of  exchange  between  nations. 
He  also  believes  that  the  bank  would  become  the 
great  international  clearing  house  of  the  world 
for  the  purchase  and  sale  of  exchange,  possessing 
the  power  to  eliminate  gambling  in  exchange  and 
to  stabilize  the  value  of  foreign  currencies. 

Another  international  bank  plan  put  before 
Congress  is  that  of  Senator  Owen,  of  Oklahoma, 
one  of  the  authors  of  the  Federal  Reserve  Act. 
In  January,  1922,  Senator  Owen  asked  Congress 
to  authorize,  by  a  bill  amending  the  Federal  Re- 
serve Act,  the  establishment  of  a  Federal  Reserve 
Foreign  Bank  to  help  restore  stable  economic  con- 
ditions throughout  the  world.  The  bill  proposed 
that  the  international  bank  should  be  owned  by 
the  Federal  reserve  system,  its  capital  of  $500,- 
000,000  in  gold  to  be  supplied  by  the  Federal  re- 
serve banks.  According  to  Senator  Owen,  the 
withdrawal  of  this  half  billion  dollars  from  the  35 
per  cent  reserve  of  deposits  belonging  to  members 
of  the  Federal  reserve  system  would  not  impair 
their  reserves,  since  the  banks  themselves  cannot 
withdraw  these  deposits,  and  yet  would  enable  the 
American  Federal  Reserve  Foreign  Bank  to 
issue  through  its  branches  in  London,  Paris  and 
Berlin  $2,500,000,000  of  notes  of  any  denomination 
against  sound  short-term  bankers'  bills,  insured 
by  100  per  cent  of  commodities.  This  proposed 
banking  institution  and  its  currency  would  enable 
money  of  the  Federal  Reserve  Banks  to  be  used 


124  OUR  ELEVEN  BILLION  DOLLARS 

in  making  loans  against  the  kind  of  bankers '  bills 
which  cannot  be  negotiated  by  the  Federal  reserve 
banks.  In  Senator  Owen's  opinion,  the  American 
Federal  Reserve  Foreign  Bank  would  provide 
Europe  with  a  stable  medium  of  exchange,  thereby 
helping  to  put  European  currencies  on  a  gold  basis 
and  to  restore  European  industry,  and  at  the  same 
time  benefiting  our  foreign  trade.  Gold  reserves 
for  redemption  purposes  would  be  available  in 
New  York,  London,  Paris  and  Berlin.  Loans  of 
the  proposed  bank  would  bear  3  per  cent  interest, 
so  that  the  undertaking  might  be  profitable,  and 
they  would  be  repayable  in  gold. 

Senator  Owen,  who  went  to  Europe  to  study  the 
situation,  said  in  presenting  his  plan:  "The  out- 
standing factor  that  retards  restoration  of 
European  industry  and  commerce  is  the  lack  of 
gold-secured  currency.  The  United  States  is  able 
to  provide  the  means  for  supplying  a  currency 
secured  by  gold,  redeemable  in  gold  and  secured 
at  the  same  time  by  merchantable  commodities 
that  in  themselves  open  and  renew  the  ways  of 
trade." 

A  fourth  great  international  bank  plan,  sup- 
ported by  the  American  Exporters  and  Importers ' 
Association,  calls  for  a  Federal  Reserve  Foreign 
Trade  Bank  to  facilitate  international  commerce 
and  to  stabilize  exchange.  The  Association  asks 
Congress  to  authorize  the  establishment  of  such 
an  organization,  with  a  capital  of  $2,400,000,000, 
the  government  to  subscribe  51  per  cent  of  the 


THE  FIRST  INTERNATIONAL  BANK       125 

stock,  or  $1,212,000,000,  and  the  remainder  to  go 
to  banks,  manufacturers,  exporters  and  importers. 
The  plan  provides  that  the  bank's  board  shall  con- 
sist of  fifteen  members — all  native-born  Amer- 
icans— including  the  Secretary  of  the  Treasury, 
the  Secretary  of  Commerce,  the  Governor  of  the 
Federal  Reserve  Board  and  twelve  members  ap- 
pointed by  the  President  from  bankers,  manufac- 
turers and  merchants  experienced  in  foreign 
trade. 

This  bank,  as  the  fiscal  agent  of  the  United 
States  government  in  foreign  trade  and  finance, 
would  be  established  as  a  part  of  the  general  Fed- 
eral fiscal  system,  of  which  the  component  parts 
would  be  the  Federal  Reserve  Board  for  domestic 
financial  and  commercial  transactions,  the  Fed- 
eral Farm  Loan  Board  for  long-time  land  mort- 
gage loans  to  agricultural  interests  and  the  Fed- 
eral Reserve  Foreign  Trade  Bank  for  foreign 
financial  and  commercial  relations. 

The  Federal  Reserve  Foreign  Trade  Bank, 
functioning  through  headquarters  in  New  York 
and  branches  at  home  and  abroad,  would  deal  in 
foreign  exchange,  establish  rates  of  discount  and 
exchange  and  commissions,  lend  money  to  deposi- 
tors, issue  bank  note  or  bank  currency,  open 
credits  for  the  accounts  of  domestic  and  foreign 
banks  and  traders,  facilitate  exports  from  and 
imports  to  the  United  States.  The  bank  would 
act  for  the  United  States  government  in  all  mat- 
ters  connected  with  the   European   government 


126  OUR  ELEVEN  BILLION  DOLLARS 

debts  and  would  conduct  transactions  under  the 
ter  Meulen  Plan. 

The  bill  which  the  American  Exporters  and  Im- 
porters '  Association  asks  Congress  to  pass  for  the 
establishment  of  this  foreign  trade  bank  exten- 
sion of  the  Federal  reserve  system,  contains  this 
important  provision : ' '  Every  transaction  directly 
or  indirectly  involving  foreign  exchange,  foreign 
credits  or  foreign  balances,  whether  covering  a 
commercial  transaction  or  not,  in  which  any  per- 
son or  persons,  firm  or  corporation  being  or  hav- 
ing an  office  or  representative  in  the  United  States 
of  America  is  directly  or  indirectly  concerned, 
must,  to  be  valid,  be  cleared  through  the  bank, 
for  which  clearance  the  bank  shall  make  a  nomi- 
nal charge.  .  .  .  The  Board  of  Directors  shall 
from  time  to  time  publish  a  list  of  those  who, 
having  complied  with  the  board 's  rules  and  regu- 
lations, are  authorized  to  buy,  sell,  deal  in  and 
transfer  foreign  exchange,  foreign  credits  and 
foreign  balances." 

The  supporters  of  this  Federal  Reserve  For- 
eign Trade  Bank  claim  that  their  plan  possesses 
peculiar  advantages  over  any  other  proposed 
international  bank  in  that  it  provides  for  the 
entire  capital  to  be  subscribed  in  the  United 
States,  the  bank's  capitalization  to  be  based  on  the 
refunded  European  debt  and  "on  $800,000,000 
of  the  enormous  excess  stock  of  gold  in  this  coun- 
try now  lying  idle."  Against  this  capital  and 
self -liquidating  commercial  paper  the  bank  would 


THE  FIRST   INTERNATIONAL  BANK       127 

issue  approximately  $3,325,000,000  of  currency. 

The  general  situation  as  to  financial  relief 
through  international  banks,  export  credits  and 
other  means  has  been  summarized  by  Secretary 
of  Commerce  Herbert  Hoover  in  the  following 
letter  to  Sir  Drummond  Fraser,  with  special 
reference  to  the  ter  Meulen  Plan : 

"  Economic  recovery  of  the  states  in  eastern 
and  southeastern  Europe  (and  consequently  a 
considerable  fraction  of  our  own  and  of  world 
commerce)  is  dependent  upon  each  state  erecting 

(1)  a    balance    in    taxation    and    expenditure; 

(2)  currency   reorganization    and    stabilization; 

(3)  wise  control  of  their  exports  and  imports; 

(4)  credits  for  reproductive  purposes. 

"It  is  hopeless  to  expect  that  private  capital 
will  extend  credits  for  exports  to  these  states 
upon  any  systematic  basis  until  the  first  three 
have  been  complied  with.  Furthermore,  attempts 
to  secure  these  three  vital  reforms  by  action 
through  various  governments  foreign  to  them 
risks  being  wrecked  on  the  rocks  of  conflicting 
political  objectives  of  such  governments. 

"The  ter  Meulen  Plan  proposes  to  facilitate 
credits  for  exports  by  the  ordinary  processes  of 
business  free  from  political  action,  when  these 
three  primary  reforms  have  been  initiated.  This 
should  act  as  a  great  pressure  to  secure  the  re- 
forms and  if  accomplished  is  at  once  nine-tenths 
of  the  battle  for  rehabilitation  of  credits  and  com- 
merce with  these  states. 


128  OUR  ELEVEN  BILLION  DOLLARS 

"I  have  the  feeling,  however,  that  something; 
more  is  needed  than  export  credits  to  these  coun- 
tries if  the  three  primary  reforms  are  to  be  accom- 
plished, i.  e.,  some  assistance  must  needs  be  found 
to  these  states  in  credit  for  purposes  directly  of 
currency  reform.  I  have  already  suggested  that 
some  action  might  be  taken  by  the  great  banks  of 
issue  of  the  principal  countries  looking  to  formu- 
lation of  a  plan  to  facilitate  solution  of  this  por- 
tion of  the  problem;  thus  again  keeping  away 
from  political  action  in  the  economic  and  financial 
affairs  of  each  of  these  states.  Such  a  plan  in  no 
way  replaces  the  ter  Meulen  Plan,  as  the  two  plans 
would  supplement  each  other. ' ' 

After  outlining  his  plans  for  an  international 
bank  and  for  the  investment  in  Europe  of  the 
billions  owed  us  by  her  governments,  Mr.  Vander- 
lip  says  in  "What  Next  in  Europe?":  "We  can 
furnish  Europe  with  much  needed  capital,  but  in 
doing  that  we  need  to  exercise  great  caution.  To 
loan  governments  money  so  long  as  they  fail  to 
regulate  expenditures  properly  would  be  likely  to 
do  more  harm  than  good.  We  need  to  consider 
with  great  care  how  effective  any  further  govern- 
ment loans  would  be  in  improving  the  situation 
permanently.  I  think  there  is  reason  to  view 
with  much  apprehension  further  increase  of 
international  debts,  unless  they  are  contracted 
under  conditions  which  are  reasonably  certain  to 
bring  about  fundamental  improvement  in  the  rela- 
tions between  European  states. 


THE  FIRST  INTERNATIONAL  BANK       129 

"While  I  believe  the  situation  of  Europe  is 
extremely  grave,  it  certainly  is  not  hopeless. 
There  are  inherent  possibilities  of  building  a  new 
Europe  which  would  be  more  prosperous  and 
comfortable  in  every  way  than  the  old  Europe  has 
ever  been.  The  prerequisite  for  that  is  a  change 
of  spirit,  and  I  believe  we  can  do  a  great  deal  to 
allay  the  suspicions,  the  hatreds  and  the  selfish- 
ness of  European  people.  We  can  help  them  see 
the  necessity  for  unity,  help  them  apprehend  the 
terrible  cost  of  selfishness.  They  must  understand 
that  the  reconstruction  of  Europe  is  a  comprehen- 
sive task.  Only  united  effort,  and  a  recognition 
that  the  welfare  of  individual  nations  can  be 
achieved  through  general  international  good  will, 
can  accomplish  it.  We  could  largely  aid  in  de- 
veloping such  a  spirit." 


X 

WANTED:  A  WORLD  ECONOMIC  CONFER- 
ENCE IN  WASHINGTON 

The  need  of  the  United  States — indeed,  of  every 
country,  since  the  economic  structure  of  all  has 
been  affected  by  the  war — is  a  world  economic 
conference,  and  this  conference  of  the  nations 
should  be  held  in  Washington. 

Sentiment  for  calling  such  a  conference  in  an 
attempt  to  solve  the  world's  economic  and  finan- 
cial problems  has  been  growing  among  American 
business  men  and  bankers,  as  it  has  become  more 
and  more  evident  that  the  Conference  for  the 
Limitation  of  Armament  and  the  Genoa  confer- 
ence have  their  place  in  post-war  history  as 
stepping-stones  to  a  greater  gathering  of  the 
large  and  small  nations.  The  whole  world  is  in 
critical  need  of  deeds,  not  words,  on  the  part  of 
a  world  group  of  representative  industrial,  finan- 
cial, labor  and  business  leaders,  within  whose 
power  it  lies  to  make  a  world  economic  conference 
in  Washington  the  most  effective  agent  since  the 
Armistice  for  a  safe  and  sane  approach  toward  a 
normal  economic  existence. 

Not  that  this  new  Washington  conference  would 
rewrite  the  treaties  made  in  Paris  and  its  en- 
virons, since  it  is  doubtful  if  Europe  will  rewrite 

130 


WORLD  ECONOMIC   CONFERENCE         131 

them  except  in  blood,  but  the  delegates  should 
take  all  countries  as  they  are  in  1922  and  initiate 
a  plan  of  mutual  cooperation  in  the  world's  eco- 
nomic rehabilitation,  which  will  be  the  most 
important  factor  in  general  political  stabiliza- 
tion. 

Leadership  in  this  great  economic  and  financial 
conference  devolves  upon  the  United  States  as  the 
wealthiest  country  and  the  chief  creditor  nation. 
Since  1918  America  has  held  the  balance  of  power, 
of  world  power,  both  political  and  economic,  but 
this  country  has  been  afraid  to  use  it,  even  for  the 
good  of  the  world.  And  for  the  first  time  in 
history  the  balance  of  power  is  in  the  hands  of  a 
country  not  actuated  by  a  policy  of  subjection  and 
exploitation  of  other  peoples.  "America,"  says 
H.  G.  Wells,  "does  not  seem  to  understand  the 
scope  of  its  moral  ascendancy  or  its  moral  advan- 
tage over  Europe  at  the  present  time." 

Among  the  reasons  why  this  world  economic 
conference  should  be  held  in  Washington  are  this 
moral  ascendancy  and  the  desirability  of  remov- 
ing the  conference  as  far  as  possible  from 
European  political  intrigue.  Europe's  inter- 
national politicians,  generally  called  statesmen, 
have  brought  about  the  present  situation  by  play- 
ing politics  with  economics,  and  the  fewer  of  them 
in  attendance  at  any  economic  conference  the 
better.  Too  much  power,  too  much  trust,  has 
been  the  share  of  the  post-war  premiers.  With  a 
few  minor  exceptions,  they  have  all  been  tarred 


132  OUR  ELEVEN  BILLION  DOLLARS 

with  the  same  stick — from  Benes,  clever  but  un- 
scrupulous, to  Lloyd  George,  whose  adroit  per- 
sonal politics  coupled  with  a  wait-and-see-saw 
policy  have  cost  the  British  Empire  and  the  world 
dearly. 

Another  reason  for  the  choice  of  Washington 
as  the  meeting  place  of  this  world  economic  con- 
ference is  the  need  of  educating  the  American 
public  in  certain  features  of  international  finance 
and  commerce.  As  a  people  we  have  no  tradition 
and  little  experience  in  foreign  business  matters. 
What  our  government  is  doing  in  these  post-war 
years  in  regard  to  foreign  relations  will  affect 
generations  of  Americans  for  centuries,  but  in  the 
matter  of  international  relations,  whether  political 
or  economic,  most  Americans  cannot  see  beyond 
themselves,  unless  they  are  parents  or  grand- 
parents, and  even  then  they  are  shortsighted  as 
compared  with  the  English,  the  French,  the  Jap- 
anese. The  successful  conclusion  of  any  world 
economic  conference  means  the  investment  of 
American  dollars  in  Europe — investments  which 
will  constitute  just  so  much  national  life  insurance 
for  us  when  the  rest  of  the  world  turns  to  Asia, 
Africa,  Australia,  South  America  for  the  bulk  of 
its  raw  materials.  Holding  the  conference  in 
Washington  would  provide  the  American  people 
with  a  much  needed  lesson  in  world  economic 
problems  and  the  part  that  it  is  best  for  this 
country  to  take  in  their  solution.  But  mav  the 
rules  of  the  conference  preserve  us  from  propa- 


WORLD   ECONOMIC   CONFERENCE         133 

ganda  about  cancellation  of  debts,  the  further 
paring  of  reparations,  Russia's  return  to  the  so- 
ciety of  nations,  and  the  this  and  the  that  of 
national  rivalries,  needs,  grievances ! 

That  the  Harding  Administration  is  not  adverse 
to  participation  in  a  purely  economic  and  finan- 
cial conference  after  Europe  has  initiated  a  defi- 
nite plan  to  set  her  house  in  order  was  indicated 
in  Secretary  Hughes'  note  declining  the  invita- 
tion to  the  Genoa  conference.  The  final  para- 
graph reads:  "While  this  government  does  not 
believe  that  it  should  participate  in  the  proposed 
conference,  it  sincerely  hopes  that  progress  may 
be  made  in  preparing  the  way  for  the  eventual 
discussion  and  settlement  of  the  fundamental 
economic  and  financial  questions  relating  to 
European  recuperation,  which  press  for  solu- 
tion." 

Among  the  first  advocates  in  urging  a  world 
economic  conference  were  A.  C.  Ratshesky,  pres- 
ident of  the  United  States  Trust  Company  of 
Boston;  S.  Stanwood  Menken,  president  of  the 
National  Security  League;  Samuel  Gompers, 
president  of  the  American  Federation  of  Labor; 
Senator  France,  of  Maryland,  partly  right  for 
once,  and  Marshal  Foch,  who,  while  in  this  coun- 
try, pointed  out  that  the  peace  is  to  be  won  only 
by  unity  of  economic  action  as  the  war  was  won 
by  a  unified  military  command. 

At  the  beginning  of  the  year  Mr.  Ratshesky 
pointed  out  in  an  article  in  the  New  York  Times 


134  OUR  ELEVEN  BILLION  DOLLARS 

that  the  urgency  of  the  existing  business  situa- 
tion justified  and  necessitated  the  calling  of  an 
international  conference,  preferably  by  the 
United  States.  In  his  opinion  the  conference 
ought  to  avoid  all  undue  interference  with  private 
business,  paternalistic  measures  and  radical  pro- 
posals in  its  effort  to  bring  business  in  the  con- 
ferring countries  back  to  a  normal  and  healthy 
state.  He  suggested  the  open  discussion  at  the 
conference  of  all  legitimate  methods  of  promoting 
economic  harmony  and  good-fellowship  between 
nations. 

Regarding  the  results  of  such  a  conference  Mr. 
Ratshesky  holds  this  view:  "If  composed  of 
picked  men  of  a  practical  character  and  of  opti- 
mistic nature,  I  am  convinced  that  it  would  result 
in  untold  good.  If  to  this  troubled  and  confused 
period  it  brought  nothing  more  than  the  exchange 
of  information,  no  more  than  a  feeling  of  inter- 
national fellowship,  no  more  than  a  relaxation  of 
the  present  tension,  and  freedom  from  a  para- 
lyzing feeling  of  depression,  it  would  have  served 
a  great  purpose.  If  it  actually  eradicated  funda- 
mental defects  and  solved  basic  problems,  the 
gains  would  be  beyond  measure." 

In  outlining  his  plan  for  American  participation 
in  a  world  economic  conference  the  president  of 
the  National  Security  League  suggested  a  prelim- 
inary conference  on  the  part  of  an  American 
commission  of  fifty-three  members,  appointed  by 
the  President,  "to  consider  and  define  America's 


WORLD  ECONOMIC   CONFERENCE         135 

position  on  world  economic  problems,  to  advise  on 
the  proper  course  as  to  Europe's  debts  to  the 
United  States,  and  to  report  on  our  own  tariff  and 
tax    problems,    including    matters    particularly 
affecting  labor  and  agriculture.""  In  Mr.  Menken's 
opinion,  the  results  of  this  preliminary  national 
conference    would   be    popular    education    as    to 
the    effect    of    world    economic    problems    upon 
the  United   States;   concrete   proposals   for  the 
solution  of  these  problems;  scientific  considera- 
tion, free  from  politics,  of  tax,  tariff  and  financial 
questions ;  a  good  example  to  be  followed  by  other 
countries  prior  to  their  participation  in  a  world 
conference,  and  a  definite  course  of  action  for  the 
American  delegates  at  an  international  congress. 
That  a  world  economic  conference  will  be  held 
seems  a  foregone  conclusion,  and  the  Genoa  gath- 
ering may  well  be  Europe's  preliminary  step  to 
such  a  conference  at  "Washington.      By  way  of 
Genoa  it  is  possible  for  Europe  again  to  discover 
America,  but  coming  this  time  with  land  disarma- 
ment a  partly  accomplished  fact,  with  reparation 
payments   fixed   at   a   figure   within   Germany's 
capacity  to  pay,  with  the  Near  East  tangle  more  or 
less  unknotted,  with  individual  programs  of  gov- 
ernment fiscal  and  monetary  reforms,  and  with 
definite  plans  for  the  payment  of  inter-govern- 
mental debts — to  prove  to  America  that  Europe, 
actuated  by  a  policy  of  political  and  economic 
unity,  is  not  beyond  self-help  in  the  matter  of  her 
own   salvation.    With   such   a   program   Europe 


136  OUR  ELEVEN  BILLION  DOLLARS 

may  then  recognize  that  her  rehabilitation  lies 
more  in  European  deeds  than  in  American  dollars. 

Surely  the  governments  and  peoples  on  the 
other  side  of  the  Atlantic  have  learned  through 
the  disarmament  conference  and  our  abstention 
from  Cannes  and  Genoa  that  there  exist  Amer- 
icans who  do  understand  Europe  and  her  per- 
verted politics  and  eccentric  economics,  that  not 
all  Americans  can  be  bamboozled  into  false  Euro- 
pean ideas  or  bamboozled  out  of  a  knowledge  of 
things  as  they  are. 

A  bold  policy  on  the  part  of  the  United  States 
will  be  needed  at  the  world  economic  conference, 
and  if  it  is  held  in  Washington  our  government 
may  the  more  easily  select  the  members  of  our 
delegation  from  among  the  most  competent  and 
independent  leaders  in  America's  economic  life. 
Eliminating  party  politics  in  the  composition  of 
the  delegation  and  in  its  support  by  the  country — 
including  the  Senate — Congress  should  authorize 
the  President  to  appoint  members  of  his  cabinet, 
congressional  leaders,  practical  economists  and 
representatives  of  American  business,  banking, 
industries,  agriculture  and  labor — all  experienced 
experts  and  specialists  in  the  various  ramifica- 
tions of  national  and  international  economics  and 
finance. 

Among  the  most  important  international  prob- 
lems with  which  the  United  States  must  concern 
itself  at  this  world  conference  are  the  financial 
and  economic  difficulties  of  three  great  empires 


WORLD   ECONOMIC   CONFERENCE         137 

shattered  in  greater  or  less  degree  by  the  war  and 
by  post-war  developments — Britain,  Germany  and 
Russia. 

Great  Britain,  owing  and  owed  huge  sums,  sees 
her  commerce  and  industries  devastated  as  a  re- 
sult of  the  disintegration  of  world  business.     The 
prosperity  of  Great  Britain  and  the  British  do- 
minions depends  largely  on  the  upbuilding  of  the 
world's  markets,  as  does  America's  prosperity, 
and  it  is  natural  that  Great  Britain  and  the  United 
States  should  stand  together  on  most  matters  at 
any  economic   conference.      The   two   countries 
cannot  afford  to  let  Europe  run  its  present  course 
to   complete  bankruptcy,   and   as   the   two   chief 
creditor  nations  theirs  is  the  right  and  the  duty  to 
insist  on  certain  lines  of  economic  and  financial 
conduct  that  will  be  of  advantage  not  only  to 
themselves  but  to  the  world  in  general.    Common 
interests    and    mutual    ideals    should    unite    the 
American    and    British    peoples — indeed,    Great 
Britain  and  the  United  States  must  hold  together 
if  the  principles  already  evolved  in  our  civiliza- 
tion are  to  continue  as  a  basis  for  further  develop- 
ment in  the  future. 

Regarding  German  participation  in  a  world 
economic  conference,  Germany  has  not  yet  shown 
herself  fit — and  an  early  change  of  attitude  is  not 
probable — to  have  an  equal  voice  in  matters 
affecting  individual  nations  and  the  world  as  a 
whole.  A  dishonest  bankrupt  never  occupies  a 
seat  of  honor  at  the  council  table  of  his  creditors. 


138  OUR  ELEVEN  BILLION  DOLLARS 

It  is  too  much  to  expect  of  Germany  that  she 
should  be  seen  and  not  heard,  but  at  any  confer- 
ence in  which  the  United  States  takes  part  there 
should  be  a  definite  understanding  that  the  Ger- 
man delegation  is  to  speak  only  when  spoken  to. 
Germany,  preparing  to  rearm,  while  disarming, 
has  failed  to  show  her  good  faith  in  helping  to 
shoulder  the  economic  consequences  of  the  war — 
war  of  her  own  making  and  of  her  own  methods 
of  destructiveness.  Germany's  economic  and 
financial  restoration  is  needed  as  an  important 
unit  in  world  rehabilitation,  but  it  must  come 
through  honest  Teuton  efforts. 

Russia's  presence  at  the  world  conference  de- 
pends, at  least  so  far  as  the  United  States  is 
concerned,  on  a  complete  change  in  methods  of 
government.  But  other  ideas  prevail  in  western 
and  central  Europe,  where  politicians  and  capital- 
ists have  engaged  in  one  intrigue  after  another 
for  the  selfish  exploitation  of  Russia's  resources 
and  peoples.  Speaking  for  himself  and  other 
conspirators,  Lloyd  George  said,  "We  do  not 
demand  certificates  of  character  from  our  cus- 
tomers," while  demanding  that  the  Soviet 
government  reimburse  its  creditors  and  guaran- 
tee its  moral  conduct,  although  fully  aware  of  the 
character  of  the  Bolshevist  government— a  gov- 
ernment whose  leaders  have  proudly  proclaimed 
that  they  do  not  intend  to  observe  any  agreements 
they  make  with  foreign  powers,  a  government 
which  even  in  1922  was  continuing  its  existence 


WORLD   ECONOMIC   CONFERENCE         139 

because  of  murder  and  imprisonment  and  despite 
disorganization  and  inefficiency,  resulting  in  eco- 
nomic chaos,  disease,  starvation,  death. 

If  it  is  necessary  for  Europe  to  save  Russia  so 
Russia  may  save  Europe,  mutual  salvation  does 
not  lie  in  an  allied  consortium  for  the  exploitation 
of  the  country  nor  in  Germany 's  grabbing  of  Rus- 
sian industries  and  resources  with  the  ultimate 
aim  of  political  as  well  as  economic  domination. 
The  open  door  in  Russia  is  as  vital  to  world  peace 
as  the  open  door  in  China. 

The  United  States  government's  attitude  on 
Russia  was  made  known  in  the  Hughes  note  on 
the  Genoa  conference:  "It  may  be  added,  with 
respect  to  Russia,  that  this  government,  anxious 
to  do  all  in  its  power  to  promote  the  welfare  of 
the  Russian  people,  views  with  the  most  eager  and 
friendly  interest  every  step  taken  toward  the 
restoration  of  economic  conditions  which  will  per- 
mit Russia  to  regain  her  productive  power,  but 
these  conditions,  in  the  view  of  this  government, 
cannot  be  secured  until  adequate  action  is  taken 
on  the  part  of  those  chiefly  responsible  for  Rus- 
sia's present  economic  disorder. 

"It  is  also  the  view  of  this  government — and  it 
trusts  that  this  view  is  shared  by  the  governments 
who  have  called  the  conference — that,  while  await- 
ing the  establishment  of  the  essential  bases  of 
productivity  in  Russia,  to  which  reference  was 
made  in  the  public  declaration  of  this  government 
on  March  25,  1921,  and  without  which  this  gov- 


140  OUR  ELEVEN  BILLION  DOLLARS 

ernment  believes  all  consideration  of  economic 
revival  to  be  futile,  nothing  should  be  done  looking 
to  the  obtaining  of  economic  advantages  in  Russia 
which  would  impair  the  just  opportunities  of 
others,  but  that  the  resources  of  the  Russian  peo- 
ple should  be  free  from  such  exploitation  and  that 
fair  and  equal  economic  opportunity  in  their  in- 
terest, as  well  as  in  the  interest  of  all  powers, 
should  be  preserved." 

The  bases  referred  to  by  the  Secretary  of  State 
are  the  safety  of  life,  the  recognition  by  firm 
guarantees  of  private  property,  the  sanctity  of 
contract  and  the  rights  of  free  labor.  Although 
there  is  no  early  solution  for  Europe's  trouble  in 
going  into  Russia,  since  Russia  must  for  years  be 
a  liability  instead  of  an  asset,  the  Lloyd  George 
government  went  on  record  as  willing  under  a 
thin  disguise  to  resume  trade  relations  with  the 
Soviet,  and  France  has  kept  insisting  that  the 
Bolshevists  recognize  the  legality  of  Russia's 
debt  of  22,000,000,000  francs  to  the  French  gov- 
ernment and  people.  But  Bolshevist  recognition 
or  not,  Russia's  war  and  pre-war  obligations  are 
legal  debts  due  the  creditors,  France,  Belgium, 
England  and  the  United  States. 

It  is  a  mistake,  however,  for  the  Allies  to  make 
repudiation  of  the  repudiation  of  these  debts  the 
primary  condition  requisite  for  allied  recognition. 
Lenin,  Trotzky  and  Co.  have  been  demanding 
that  they  be  treated  as  equals,  while  they  have 
been    suppressing    liberty    in    every    phase    of 


WORLD  ECONOMIC   CONFERENCE         141 

national  life  and  feeding  the  largest  army  in  the 
world,  this  while  America  and  other  countries 
have  been  feeding  as  many  of  Russia's  starving 
people  as  it  has  been  possible  to  reach  by  the 
broken-down  system  of  transportation.  The  very 
equality  that  the  Bolshevists  want  should  be  the 
first  basis  of  the  allied  and  American  demand — 
not  equality  based  on  murder  and  military  dic- 
tatorship, but  the  equality  of  freedom  of  speech, 
freedom  of  the  press,  freedom  of  suffrage — in  one 
word,  liberty. 

At  this  world  economic  conference  the  agenda 
to  be  considered  should  cover  the  following  sub- 
jects: 

1.  National  Trade  and  Industry. — Basic  busi- 
ness conditions,  problems  of  manufacture  and 
agriculture,  problems  of  labor,  production  and 
consumption,  reconstruction,  development  of 
natural  resources. 

The  many  questions  connected  with  national 
trade  and  industry  need  to  be  viewed  through  the 
eyes  of  the  consumer  and  worker  as  well  as  from 
the  point  of  view  of  the  manufacturer  and  banker. 
Every  country  needs  greater  cooperation  between 
the  worker  and  his  employer  for  the  sake  of  gen- 
eral prosperity  and  internal  security.  In  regard 
to  this  matter  the  International  Financial  Con- 
ference at  Brussels  took  the  following  view: 
"Industry  must  be  so  organized  as  to  encourage 
the  maximum  production  on  the  part  of  capital 
and  labor,  as  by  such  production  alone  will  labor 


142  OUR  ELEVEN  BILLION  DOLLARS 

be  able  to  obtain  those  improved  conditions  of 
life  which  it  is  the  aim  of  every  country  to  secure 
for  its  people.  All  classes  of  the  population,  and 
particularly  the  wealthy,  must  be  prepared  will- 
ingly to  accept  the  changes  necessary  to  remedy 
the  present  situation."  Despite  what  has  been 
written  on  the  wall  in  blood  by  this  war  the  capi- 
talist class,  from  the  little  shopkeeper  to  the  great 
industrialist,  fails  to  recognize  the  inevitable 
trend  of  human  progress  in  the  readjustment  of 
class  relations. 

The  question  of  food  supplies  is  a  highly  impor- 
tant matter  for  Europe,  since  the  majority  of  her 
people  depend  on  the  interchange  of  manufactured 
goods  for  food  and  raw  materials,  an  interchange 
which  is  possible  only  through  the  complex  organi- 
zation of  international  finance  and  trade,  of  fixed 
and  circulating  capital.  The  development  of 
natural  resources  constitutes  a  legitimate  ques- 
tion for  the  world  economic  conference — condi- 
tions are  sufficiently  abnormal  without  making 
them  more  so  by  discussion  of  Italy's  argument 
that  no  country  possessing  rich  deposits  of  natural 
products  required  by  the  industries  of  the  world 
should  be  allowed  to  control  them. 

2.  International  Trade.  —  Tariff  changes, 
transportation,  immigration,  protection  of  indus- 
trial, literary  and  artistic  properties,  status  of 
individuals  and  corporations  engaging  in  business 
in  foreign  countries,  and  communications,  with 


WOKLD  ECONOMIC   CONFERENCE         143 

reference  to  cable,  wireless  and  postal  guarantees, 
and  passport  reforms. 

The  world  to-day  is  suffering  from  too  many 
trade  restrictions,  not  only  in  European  countries 
but  also  in  the  United  States,  though  to  a  less 
extent  from  our  tariff  barriers.  American  tariff 
schedules  must  be  delicately  adjusted  to  meet  our 
peculiar  needs  for  protection  and  the  partial  pay- 
ment of  European  debts  by  importation.  World- 
wide regulation  of  immigration  is  necessary  in 
the  face  of  threatening  conflicts  as  a  result  of 
overpopulation  and  differences  as  to  racial  su- 
periority. The  United  States  will  be  flooded  with 
undesirable  aliens  if  the  three  per  cent  barrier  is 
let  down,  while  other  countries  needing  immi- 
grants will  continue  to  be  ignored.  The  problems 
of  international  transportation  and  communica- 
tion also  demand  careful  and  immediate  consider- 
ation. 

3.  National  Finance. — Public  finance,  with  spec- 
ial reference  to  armament  expenditures;  recon- 
struction of  national  currencies  on  a  gold  basis; 
central  banks  and  banks  of  issue. 

"Every  government  should,  as  the  first  social 
and  financial  reform,  on  which  all  others  depend, 
restrict  its  ordinary  recurrent  expenditure,  in- 
cluding the  service  of  the  debt  to  such  an  amount 
as  can  be  covered  by  its  ordinary  revenue,  rigidly 
reduce  all  expenditures  on  armaments  in  so  far  as 
such  reduction  is  compatible  with  the  preserva- 


144         OUR  ELEVEN  BILLION  DOLLARS 

tion  of  national  security,  abandon  all  unproduc- 
tive extraordinary  expenditure  and  restrict  even 
productive  extraordinary  expenditure  to  the  low- 
est   amount    possible."      This    resolution    was 
approved  by  the  International  Financial  Confer- 
ence at  Brussels  in  1920,  and  still  holds  good  as 
a  basis  of  action  for  most  of  the  countries  of 
Europe.    The  insolvent  countries  must  settle  their 
basic  financial  problems  by  the  balancing  of  bud- 
gets and  the  elimination  of  inflation  before  gold 
can  be  restored  as  the  standard.    Not  only  must 
gold  be  reinstated  for  the  sake  of  internal  stability 
but  as  a  fundamental  basis  for  international  finan- 
cial   and    commercial    relations.      The    Federal 
Reserve  Board  holds  the  opinion  that  "a  simple 
ultimatum  to  insolvent  nations,  to  the  effect  that 
obligations  must  be  met  and  budgets  must  be 
balanced,  will  not  bring  about  a  solution  of  inter- 
national difficulties.    The  capacity  of  the  several 
nations  to  defray  recurrent  expenditures  out  of 
regular  sources  of  income  must  be  carefully  ap- 
praised, and  expenditures  in  excess  of  ability  to 
pay  must  be  eliminated  before  budgets  can  be 
balanced    and    inflation    consequently    stopped. 
Until  some  sort  of  international  agreement  based 
upon  recognition  of  this  patent  fact  has  made  pos- 
sible   the    cessation    of    deficit    financiering,    no 
program  of  currency  reform  involving  a  return 
to  the  gold  standard  has  any  chance  of  success." 
Despite  the  Conference  for  the  Limitation  of 
Armament  and  the  Genoa  program,  disarmament 


WORLD   ECONOMIC   CONFERENCE         145 

will  long  continue  a  matter  for  international  con- 
sideration. The  cause  or  causes  of  war  have 
always  been  found  in  personal  ambition,  class 
greed,  overpopulation  and  trade  rivalries.  The 
last  war  has  demonstrated  how  well  peace  pays 
for  the  masses,  but  the  profiteer  class  doesn't 
object  so  much  to  war  as  to  post-war.  Two  of  the 
underlying  factors  of  war  can  be  removed  by 
economic  conferences  through  the  international 
adjustment  of  trade  between  nations  and  the  con- 
trol of  the  capitalistic  elements  that  profit  by  war, 
the  chief  controlling  measure  to  be  an  inter- 
national agreement  for  the  conscription,  in  case  of 
war,  of  all  the  factors  of  a  nation's  production. 

4.  International  Finance. — Foreign  exchange, 
gold  redistribution,  credits,  debts. 

To  stabilize  exchange  the  essential  though  dif- 
ficult reestablishment  of  a  free  movement  of  goods 
and  services  between  individuals  and  nations  must 
be  brought  about.  For  stabilization  artificial 
measures  have  proved  useless.  In  the  efforts  to 
hasten  the  return  to  normal  trade  and  exchange, 
it  is  unlikely  that  the  ter  Meulen  Plan  will  ever 
be  tried  out  on  an  extensive  scale.  By  the  time 
conditions  are  sufficiently  stable  for  its  success- 
ful operation,  there  will  probably  be  no  need  for 
the  issue  of  bonds  such  as  the  plan  calls  for.  It 
is  also  doubtful  if  an  international  bank  based  on 
any  of  the  American  plans  to  help  solve  the 
world's  troubles  will  ever  be  established.  Inter- 
national currency,  if  issued  by  such  a  bank,  would 


146  OUR  ELEVEN  BILLION  DOLLARS 

not  have  enough  realized  value  behind  it  to  pre- 
vent its  adding  to  the  world's  burden  of  depre- 
ciated paper.  In  fact,  an  international  currency 
is  not  necessary  so  long  as  the  American  dollar 
has  its  100  cents  of  gold  backing.  As  ex-Secretary 
of  the  Treasury  Shaw  has  pointed  out,  the  sums 
of  dollars  that  would  be  required  for  actual  ship- 
ment from  country  to  country  in  the  use  of  our 
dollar  as  international  currency  would  be  small 
in  proportion  to  the  volume  of  business  done. 
The  great  evils  of  the  present  foreign  exchange 
system — speculation,  huge  profits  and  manipula- 
tion of  enormous  sums  by  foreign  exchange 
bankers — call  for  the  establishment  by  the  leading 
governments  of  an  international  bank  of  exchange 
controlled  by  the  governments  and  cooperating 
with  banking  institutions  in  all  countries. 

The  United  States  will  have  to  consider  redis- 
tribution of  the  world's  gold  supply  in  accordance 
with  plans  carefully  worked  out  with  creditor  and 
debtor  nations,  belligerents  and  neutrals  alike. 
"If  we  do  not  do  this  in  time,"  said  D.  R.  Cris- 
singer,  Comptroller  of  the  Currency,  "the  in- 
evitable operation  of  economic  law  will  sooner  or 
later  begin  to  do  it  for  us,  and  perhaps  in  circum- 
stances and  by  methods  that  will  result  in 
unfortunate  consequences."  But  until  the  in- 
solvent countries  institute  effective  fiscal  reforms 
they  will  receive  no  American  gold. 

It  is  to  the  interest  of  our  manufacturers,  farm- 
ers and  workers,  in  fact,  of  the  entire  country, 


WORLD   ECONOMIC   CONFERENCE         147 

that  Europe's  buying  power  be  built  up,  but,  as 
has  been  shown,  American  dollars  alone  cannot 
accomplish  the  feat.  Europe  expects  enormous 
additional  credits  from  us,  but  the  pouring  of 
further  huge  sums  into  Europe  is  neither  desir- 
able nor  possible.  *'It  is  an  anomaly  for  a  nation 
such  as  the  United  States  to  be  in  the  position  of 
creditor  to  the  rest  of  the  world,"  says  Professor 
H.  G.  Moulton,  of  the  University  of  Chicago.  "No 
nation  ever  before  became  a  great  creditor  when 
its  own  industrial  resources  were  so  partly  de- 
veloped as  is  the  case  with  the  United  States." 
We  must  figure  out  the  minimum  sum  necessary 
to  help  a  self -helping  Europe  with  her  rehabilita- 
tion. Even  that  sum  will  not  be  provided  by  the 
American  people  in  their  present  state  of  mind 
unless  Europe  frankly  acknowledges  her  debts  to 
us  and  initiates  an  effective  program  for  their 
payment.  To  counterbalance  this  payment  Amer- 
ican investors  must  undertake  the  investment 
abroad  of  at  least  corresponding  amounts  of 
capital  and  so  eliminate  the  adverse  effects  that 
would  accompany  Europe's  attempts  to  pay  these 
debts  without  unbalanced  payment — effects  worse 
than  any  we  have  yet  experienced.  Since  our 
investing  public  knows  little  of  the  foreign  invest- 
ment market,  which  holds  even  more  pitfalls  than 
our  own,  education  on  the  subject  and  government 
cooperation  are  necessary. 

Already  we  have  $11,000,000,000  plus  $5,000,- 
000,000  in  Europe.    We,  the  people  of  the  United 


148  OUR  ELEVEN  BILLION  DOLLARS 

States,  enter  any  conference  with  the  understand- 
ing that  we  will  give  assistance  in  all  legitimate 
ways,  but  that  cancellation,  except  in  so  far  as 
we  see  fit,  is  not  one  of  them.     At  the  opening  of 
this  world  economic  conference  let  our  representa- 
tives  at   least   announce   the   cancelling   of   the 
$92,262,550  owed  to  us  by  Armenia,  Czechoslov- 
akia, Esthonia,  Finland,  Latvia,  Lithuania  and 
Poland  for  food  delivered  to  their  peoples  in  1919 
by  the  American  Relief  Administration  and  of  the 
sum  of  $60,340,601  due  the  United  States  Grain 
Corporation    from    Armenia,    Austria,    Czecho- 
slovakia, Hungary  and  Poland — cancellation  in 
the  cause  of  a  good  charity.     Contingent  upon 
effective  disarmament  in  Europe  might  be  the 
cancellation  of  the  $586,400,968  owed  us  for  sur- 
plus war  materials.     Any  further  cancellation  can 
be  Europe's  own  in  connection  with  her  internal 
war  debts.    Germany,  for  example,  has  $80,000,- 
000,000  of  war  bonds,  whose  cancellation  would 
facilitate  the  payment  of  reparations — certainly, 
as  long  as  these  bonds  stand  and  reparations  are 
evaded  the  Germans  need  expect  no  large  loan 
from   this   country,   a   loan   which   would   serve 
them  to  exploit  Russia  and  her  people.    Worthy 
also  of  consideration  is  the  suggestion  that  in  the 
general  readjustment  of  inter-governmental  debts 
America  should  take  over  China's  indebtedness  of 
more  than  a  billion  dollars  to  the  allied  nations 
and  credit  the  debtor  European  nations  by  the 
amount  of  their  claims  on  China. 


WORLD  ECONOMIC   CONFERENCE         149 

In  case  the  countries  of  Europe  fail  to  take 
definite  and  effective  action  to  secure  their  own 
political  and  economic  stability,  the  United  States 
will  soon  be  in  pressing  need  of  an  American 
conference  to  work  out  a  helpful  plan  for  the 
reorganization  of  American  business  and  com- 
merce. No  matter  what  the  composition  and 
scope  of  the  next  economic  conference  the 
readjustments  necessary  will  require  prolonged 
negotiations. 

No  single  conference  will  settle  for  once  and  all 
how  the  world  may  pay  for  the  war  and  repair  the 
machinery  of  trade  and  industry,  but  world  reha- 
bilitation will  come,  must  come,  through  exhaus- 
tive and  fearless  discussion  leading  to  effective 
action.  From  this  world  conference  and  its  con- 
sideration of  the  problems  presented  in  the 
agenda  above,  no  immediate  solution  of  the 
world's  difficulties  can  be  expected,  but  the  con- 
ference can  initiate  the  program  of  economic  reor- 
ganization that  will  ultimately  win  this  post-war 
by  providing  a  hopeful  basis  for  immediate  action 
and  the  adjustment  of  more  equitable  relations 
between  consumer  and  producer,  labor  and  capital, 
and  among  nations,  large  and  small,  old  and  new 
—not  so  much  because  of  the  $11,000,000,000  and 
more,  as  for  the  sake  of  the  many  millions  of  peo- 
ple who  are  in  misery  throughout  the  world  on 
account  of  the  lack  of  work  and  the  means  of  a 
decent  livelihood. 


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